Tarullo exits Federal Reserve

Well this was a surprise:

Daniel K. Tarullo submitted his resignation Friday as a member of the Board of Governors of the Federal Reserve System, effective on or around April 5, 2017. He has been a member of the Board since January 28, 2009…Tarullo, 64, was appointed to the Board by President Obama for an unexpired term ending January 31, 2022. During his time on the Board, he served as Chairman of the Board’s Committee on Supervision and Regulation. He was also Chairman of the Financial Stability Board’s Standing Committee on Supervisory and Regulatory Cooperation.

Tarullo was the Fed’s point man on financial regulatory issues, although he was never confirmed to the role of Vice Chairman for Supervision and was often undermined by the Fed’s far more powerful General Counsel, who, as it happens, is also leaving.

His departure adds to the two open spots on the Federal Reserve Board, which in principle is supposed to have seven members.

Janet Yellen, meanwhile, will be up for reappointment to the top job in 2018, although she can theoretically stay on as a governor until 2024, because the terms are of different lengths. Similarly, Stanley Fischer will also be up for reappointment as Vice Chairman in 2018 but theoretically has the option of lurking at the Fed until 2020.

Of the other two board members, Jerome Powell can stay, should he so choose, until 2028, while Lael Brainard can stay until 2026. Tarullo could have remained at the Fed until 2022, but has chosen not to.

This means President Trump will have the opportunity to put three people on the Fed just a few months into his time in office, plus two additional opportunities to shake up the Fed’s leadership within a year after that.

That would be significant if he or his advisers had unorthodox views on central banking. But given Trump’s claim to be “a low-interest-rate-person” and his claim that Yellen is “very capable”, it’s unclear how much change in monetary policy is really on the horizon. (Regulation is a different matter, but needs to be considered against the departure of the Fed’s General Counsel and the broader changes to the regulatory environment brought about by the election and the composition of Congress.)

Moreover, Trump hasn’t yet nominated even one candidate to the Federal Reserve Board, despite the opportunity to do so. By contrast, he moved to fill the single vacancy on the Supreme Court within his second week in office. That suggests changing the Fed isn’t a meaningful priority, at least right now. Of course, the Federal Open Market Committee has managed with fewer than seven board members almost continuously since March, 2005, so there is plenty of precedent for Trump to leave some positions open even though his party narrowly controls Congress. (The exception was a brief stretch in 2012-2013.)

Suppose Tarullo leaves before anyone new is confirmed to the Fed’s Board. That would cut the number of governors to just four people. One weird consequence is that meetings of the Board’s committees on regulation, consumer protection, financial stability, et al would become open to the public. The Fed’s rules mean any meeting with three governors has a quorum if there are only four governors in office, each of those committees have three governors on them, and government transparency laws require meetings of agencies to be public if there is a quorum.

There are plenty of talented people with expertise in both monetary policy and financial regulation who could fill the Fed’s growing number of open positions. Whether they will get hired, however, is anyone’s guess.