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Fed finds itself shorthanded — again

By
Colin Barr
Colin Barr
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By
Colin Barr
Colin Barr
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February 10, 2011, 7:54 PM ET
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In what is becoming a familiar refrain, Kevin Warsh’s departure will leave an already short-staffed Federal Reserve even more depleted.

Warsh, one of the Fed’s sharpest-clawed inflation hawks, announced his resignation from the Fed’s board of governors Thursday. He will leave March 31 after five years on the board, leaving more than half of his 12-year term unfinished.



Short-timer

The Fed board is supposed to operate with seven members, but Warsh’s departure will take it down to five. The last time the Fed board operated without a vacancy was April 2006, before the resignation of Roger Ferguson.

There is no word yet on whom the White House might nominate to replace Warsh, whose 2006 appointment prompted much eyebrow-raising.

The Obama administration last year nominated MIT professor Peter Diamond for what would have been a board-filling appointment. But Republicans in Congress opposed his candidacy and his confirmation remains on the back burner.

To be sure, the Fed isn’t as shorthanded as it has been in the recent past. It briefly operated with four members at the end of last year, after Vice Chairman Don Kohn retired and before governor Sarah Bloom Raskin and Vice Chairman Janet Yellen were confirmed by the Senate.

But working without a full complement of governors could hamstring the central bank should another financial crisis erupt. And vacant seats at the board table at a time of intense political pressure over the course of Fed policy could further erode the central bank’s independence. Assuming that’s still possible.

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