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April 3, 2014 4:05 pm
Jeremy Stein is to step down as a governor of the US Federal Reserve in a move that strips the central bank of an influential voice on financial stability.
Mr Stein will return to Harvard University on May 28 after serving at the Fed for two years. He would have lost tenure as an economics professor had his absence been longer.
During his term, Mr Stein sounded the alarm about risks to financial stability during long periods of low interest rates, and played an important role in the Fed’s plans for tapering its asset purchases.
His departure may strengthen the hand of Fed doves, who are most concerned about unemployment, and means there will be two vacancies on the board of governors, even after Stanley Fischer and Lael Brainard are confirmed by the Senate.
“Jeremy has made important contributions and served as an intellectual leader during his time at the board,” said Janet Yellen, chairwoman of the Fed. “My colleagues and I will miss him.”
Mr Stein’s most important moment at the Fed was a speech in February 2013 when he gave warning of speculation in some corners of the financial sector and said that monetary policy might need to respond.
Combined with his formidable academic record, and mainstream economic views, it made him the leading voice among officials who feared overheating in bond markets as a result of the Fed's third, open-ended round of quantitative easing. This eventually led to talk about tapering purchases by Ben Bernanke, then Fed chairman, last year, and the ultimate decision to taper purchases from $85bn a month last December.
“During my time here, the economy has moved steadily back in the direction of full employment, and a number of important steps have been taken to make the financial system stronger and more resilient,” wrote Mr Stein in a resignation letter to President Barack Obama.
Mr Stein, 53, is considered a likely candidate for senior economic jobs in the future, having previously served in Mr Obama’s White House and as an adviser to the treasury secretary.
He recently gave another speech about how to incorporate worries about financial stability into monetary policy, arguing that the Fed could look at risk premia in the bond markets as a simple guide to financial dangers. “These variables have the potential to serve as simple proxies for a particular sort of financial market vulnerability that may not be easily addressed by supervision and regulation,” he said.
Meanwhile, fresh signs emerged that the US economy had come through a weather-induced soft patch earlier this year, as the ISM purchasing managers’ index rose by 1.5 percentage points to 53.1 in March. Levels above 50 point to expanding activity.
Non-farm payrolls for March, due out on Friday, are expected to show a rise of 206,000 as the economy picks up after an unusually cold winter.
The unemployment rate is forecast to drop from 6.7 to 6.6 per cent.
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