Warsh, Lone Hawk on Fed's Board, to Step Down

Thursday, 10 Feb 2011 11:35 AM

 

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Kevin Warsh, the Federal Reserve's youngest-ever governor and a vocal inflation hawk skeptical of recent monetary easing efforts, said on Thursday he is stepping down from the central bank's powerful board.

No reason was cited for Warsh's decision. He joined the Fed on Feb. 24, 2006, and will have served just over five years when he leaves at the end of March. His term was not due to expire until Jan. 31, 2018.

A Fed official said Warsh had no immediate career plans after leaving the Fed.

The departure of Warsh, a former banker at Morgan Stanley, may tilt the balance of views at the Fed's influential Washington-based nucleus, favoring those who support further monetary easing if economic weakness persists.

The U.S. central bank is at a crucial, unprecedented juncture in its history. Having pushed interest rates all the way to zero in response to the worst recession in generations, the Fed has also made commitments to purchase a total $2.3 trillion in government and mortgage bonds.

Economists say history will judge the Fed not simply for its response to the crisis but in its ability to withdraw this stimulus in a timely manner, an issue that has been a high priority for Warsh.

While his public appearances and speeches were relatively infrequent, they often made a splash, as with a Wall Street Journal editorial piece expressing skepticism about the Fed's $600 billion bond-purchase program published just days after its launch in November.

Another key op-ed, back in September 2009, spooked financial markets by suggesting that the Fed's eventual exit from such extraordinary stimulus measures might be more rapid and abrupt than investors had been expecting.

A graduate of Harvard Law School, Warsh is among the Fed's richest top officials. Financial disclosures released in July stated that as of 2009, his wife Jane Lauder, granddaughter of the founder of the Estee Lauder cosmetics company, had assets worth at least $66.3 million. Warsh listed assets worth between $702,000 and $1.5 million.

Warsh's appointment by former President George W. Bush was seen as controversial at the time. Then 35, Warsh, whose background is in law rather than economics, was seen as lacking experience and being too politically connected to the Bush White House.

However, he emerged as a key player during the financial crisis, as Fed Chairman exploited Warsh's ties to the banking sector as a way to keep open communications between the central bank and key firms.

Along with former Fed Vice Chair Donald Kohn and Treasury Secretary Timothy Geithner, Warsh quickly became part of Bernanke's inner circle.

"Kevin rendered the Federal Reserve and the nation exemplary service during his time at the Board," Bernanke said in a statement. "In particular, his intimate knowledge of financial markets and institutions proved invaluable during the recent crisis.

"I deeply appreciate his insights and wise counsel and, most especially, his fortitude and friendship during the difficult days, nights and weekends of the crisis," Bernanke added.

© 2014 Thomson/Reuters. All rights reserved.

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