MNI Analysis: Fischer Vacancy on Fed Board Ups Uncertainty

--Departure Leaves 3 Open Seats for Trump to Fill, Even After Quarles

By Karen Mracek

     WASHINGTON (MNI) - The surprise announcement Wednesday that Federal Reserve

Vice Chairman Stanley Fischer will resign effective mid-October leaves an

already-depleted Board of Governors without one of the world's most experienced

central bankers.

     It also increases the influence President Donald Trump will have on the Fed

going forward and adds additional uncertainty to monetary policymaking in the

year ahead. Assuming Randal Quarles is confirmed to the board by the Senate,

Trump still has three open seats to fill on the seven-member board. 

     Fischer's resignation is effective "on or around October 13," the Fed said

in a statement. This means he will participate in the Sept. 19-20 meeting of the

policymaking Federal Open Market Committee -- his last -- when the committee is

largely expected to put into place its plan to end reinvestments. 

     Fischer was widely expected to step down next year when his term as vice

chair expires June 12. His term as a governor does not expire until early 2020,

but given his age, 73, and the likelihood of a change at the chair position,

Fischer was expected to soon consider stepping down.

     So while his departure comes sooner than expected, a turnover at the vice

chair position was likely to happen. But the earlier departure adds uncertainty

and could mean a shift the dynamics of the policymaking FOMC which is

considering a rate hike at its December meeting.

     Fischer was largely seen as a slightly hawkish member of the committee, but

one who was mostly in agreement with Yellen's views on monetary policy.

Recently, Fischer lamented about the low levels of global real interest rates

and low growth in productivity. He last weighed in on rate hikes in April when

he said he could see two more this year. 

     What exactly this move means for policy, though, depends not on who is

leaving, but who is joining the Fed. And that remains as uncertain as it was

yesterday. 

     Trump's sole board nominee so far, Quarles, will get a vote in the Senate

Banking Committee Thursday, and is largely expected to be approved. Then his

nomination is headed to the full Senate before he can be sworn in.

     Quarles is considered a hawk, though his public views on policy are limited

though he has argued in favor of monetary policy formulas in the past. An under

secretary of the Treasury for domestic finance in George W. Bush's

administration from 2005 to 2007, and executive director of the International

Monetary Fund, Quarles was nominated to fill the vice chair of supervision role,

a position which has sat empty since it was mandated by the 2010 Dodd-Frank Act.

     Quarles in his July 27 confirmation hearing told U.S. senators he did not

advocate that the Fed adopt the Taylor Rule for setting interest rates.

     "The Taylor Rule is merely one example of a (monetary policy) rule," he

said at the Senate Banking Committee at a hearing to consider his nomination.

"I'm not advocating the adoption of the Taylor Rule to guide Fed policy." He

added he would take "very seriously" the Fed's full employment mandate.

     Other names being floated for possible nominations include Glenn Hubbard,

Kevin Warsh, John Taylor, Randall Kroszner and Marvin Goodfriend. One has to be

a community banker.

     The other lingering question Fischer's resignation raises is its impact on

the top position at the Fed. Yellen's term as chair ends Feb. 3 and there is a

lot of speculation around her replacement. 

     Fischer's early departure likely means she is only slightly more likely to

be renominated, if only for the sake of continuity at the board. It is hard to

say though whether that will factor into Trump's decision. It would add more

urgency to getting a chair confirmed before Yellen leaves as the law does not

name a clear successor who would take her place temporarily. 

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@marketnews.com

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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