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Federal Reserve's Vice Chairman resigns: Rats abandon the Titanic

John Smith
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John Smith
 Federal Reserve's Vice Chairman resigns: Rats abandon the Titanic

Citing “personal reasons,” Federal Reserve Vice Chairman, Stanley Fischer has resigned from his position. The resignation will officially take place on October 13, leaving the vacant seat to be filled by President Trump.

In his resignation letter, Fischer wrote, “It has been a great privilege to serve on the Federal Reserve Board and, most especially, to work alongside Chair [Janet] Yellen as well as many other dedicated and talented men and women throughout the Federal Reserve system.”

According to a report by CNBC: “The resignation of Fischer, whose term was set to expire on June 12, 2018, creates yet another opening at a critical time for the Fed. The central bank is set to begin unwinding the $4.5 trillion balance sheet of bonds it built up during its economic stimulus efforts and is trying to normalize interest rates after keeping its benchmark rate near zero for seven years.”

According to The Week:

So, very soon, we may well have a Federal Reserve that seeks to implement Trump's preferred monetary policies. But what are those policies? Not even Trump himself seems to know.

First, here's the lay of the land: Along with Fischer's retirement, Fed Chair Janet Yellen's term runs out at the end of January 2018. So Trump will have to decide whether to reappoint her or pick a replacement. If he goes with the latter, White House chief economic adviser Gary Cohn is reportedly high in the running.

So that's two openings. The other three openings are already vacant seats on the seven-member board. Two of those three Trump actually inherited from President Obama, who never got around to filling the seats. That was partially due to the unprecedented obstruction of Senate Republicans, who quite likely wouldn't have confirmed anyone Obama nominated. But the Obama administration also decided Fed monetary policy simply wasn't a terribly high priority.

This was a monumental screw up. It's true that once you hit a zero interest rate — which the Fed did soon after the 2008 financial crisis in an effort to stimulate the recovery — delivering further economic boosts via monetary policy becomes a lot more complicated. But the Fed's ability to squelch job and wage growth by hiking interest rates is very straightforward, and has no upper limit. America's long, grinding recovery from the Great Recession is finally showing signs of life, but many metrics of genuine health — like wage growth and labor force participation — remain disturbingly low. In many ways, the economy is still in a very deep hole.

Bloomberg reported: “Fed watchers had expected he would step down but not with eight months remaining in his term. His departure will remove an influential voice at a time when the central bank appears divided on the need to hike interest rates again this year despite lower-than-desired inflation. He’s also been a powerful advocate for maintaining post-crisis financial regulations that the Trump administration wants to roll back.”

Some don’t consider this good news at may create disorder; both Fischer and Yellen were considered “bedrocks of monetary policy.”

"Capital markets generally hate transition, ... and it appears that we will now have wholesale change at the Fed which is the last independent and competent part of US policymaking apparatus," said Boris Schlossberg, managing director of FX strategy for BK Asset Management.

According to CNBC, the U.S. dollar fell against a basket of currencies Fischer announced his resignation: “The dollar index hit an eight-day low of 92.005 and hovered around that level at 11:31 a.m. in New York, down 0.25 percent.”

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