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Fed honcho quits; is a shakeup coming?

By Holden Lewis · Bankrate.com
Tuesday, April 4, 2017
Posted: 4 pm ET
(Barry Winiker/Getty Images)

Steel and glass Federal Reserve Bank, Fifth District headquarters, Richmond, VA, U.S.A. (Barry Winiker/Getty Images)

A key member of the Fed has quit in scandal.

The resignation of Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Virginia, won't affect mortgage rates or other interest rates. So you don't need to take any kind of defensive action. But his departure adds to the sense of turmoil for the central bank, which could shake up rate policy soon.

Fed honcho quits is a shakeup coming

Jeffrey Lacker. Courtesy of Richmond Federal Reserve

Fed in disarray?

"Lacker was set to leave his post later this year, so this just moves up the timetable for finding a permanent replacement," says Mark Hamrick, Bankrate's senior economic analyst. "Nevertheless, the future political independence and ultimate effectiveness of the central bank and challenging policy issues remain in question."

Lacker acknowledges that he leaked confidential information to a newsletter reporter in 2012. The newsletter, published by Medley Global Advisors, contained nonpublic details of the Fed's September 2012 meeting. The Fed investigated the leak on the grounds that it could have given the newsletter's readers an unfair advantage.

The episode comes amid questions about the future of Federal Reserve Board Chair Janet Yellen, given negative comments made about her by Donald Trump during the campaign. Her term as Fed chief ends early next year.

"The future make-up of Fed leadership remains a wildcard," Hamrick says.

No vote in 2017

The Richmond Fed doesn't have a vote this year on the Federal Open Market Committee, which sets short-term interest rate policy. When Richmond last had a vote, in 2015, Lacker was the committee's most hawkish member, meaning he was eager to raise interest rates sooner rather than later.

Lacker already had announced his plan to retire this year. Mark Mullnix, the Richmond Fed's first vice president, will serve as acting president while the board searches for a permanent replacement.

The president of the Richmond Fed will have a vote on the monetary policy committee in 2018. It would be surprising if that person turns out to be less hawkish than Lacker.

Why Lacker quit

In a resignation letter, Lacker recounted his version of a telephone interview he had with the newsletter reporter:

During that October 2, 2012 discussion, the Analyst introduced into the conversation an important non-public detail about one of the policy options considered by participants prior to the meeting. Due to the highly confidential and sensitive nature of this information, I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued.

He continued, "I deeply regret the role I may have played in confirming this confidential information and in its dissemination to Medley's subscribers."

Lacker says he didn't 'fess up when Fed officials questioned him that month. But he says that he did come clean when FBI agents and other law enforcement officials questioned him in 2015.

When did Lacker's bosses find out? The Fed Bank of Richmond implies that it was told only recently. "Once our Bank's Board of Directors learned of the outcome of the government investigations, they took appropriate actions," the bank says.

Mortgage rates remain very attractive. Use Bankrate's mortgage calculator to see if refinancing makes sense for you.

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