Federal Reserve Blog

Finance Blogs » Federal Reserve » Kohn’s departure to alter makeup of FOMC

Kohn’s departure to alter makeup of FOMC

By Greg McBride, CFA · Bankrate.com
Friday, March 26, 2010
Posted: 4 pm ET

In early March, Federal Reserve Vice Chairman Don Kohn announced he would step down in June. As far as Federal Reserve operations go, particularly those of a regulatory and consumer protection nature, the changing face of the Federal Reserve is likely to take a turn toward emphasizing both regulatory and consumer protection. While the Federal Open Market Committee may still be months away from raising interest rates at that point, the question that will linger is whether the change from Kohn to his yet unnamed and unconfirmed successor will alter the way the FOMC conducts monetary policy.

One concern is whether the independence of the FOMC has been compromised, either as a result of Chairman Bernanke's contentious reconfirmation or by forthcoming appointments. Depending upon who ultimately takes over for Vice Chairman Kohn, investors may be nervous if the FOMC begins to take on a more dovish, or soft, inflation stance. On the other hand, an inflation hawk might raise concerns of snuffing out a recovery by increasing interest rates too soon.

The stance of the FOMC has been pretty consistent that the last lever of monetary policy they intend to pull is to raise short-term interest rates. Even if a hawkish replacement for Kohn is confirmed, that is unlikely to alter the near-term time table for interest rate hikes, but could pay benefits in the longer term if the Federal Reserve is seen as having the backbone to stave off inflation by raising interest rates as needed. If the makeup of the Federal Reserve and the FOMC are seen as being susceptible to the tongue-lashings of Congress, that will not bode well from an inflation standpoint and is a concern that would quickly be reflected by rising long-term interest rates.

»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.