“Monetary policy should be less accommodative…willing to tolerate a larger forecast shortfall of the path of the unemployment rate from its full employment level…when estimates of risk premiums in the bond market are abnormally low.”, Jeremy C. Stein, Federal Reserve Board Governor, March, 2014

“Isn’t this another way of saying that the Fed’s dual mandate really doesn’t work? I believe the most prudent central bankers around the world focus on monetary policies that foster stable prices and moderate interest rates and those monetary conditions, combined with a limited government, wise and prudent regulation of free and fair markets and the rule of law, foster a strong economy and employment. And if for some reason it doesn’t foster ‘full employment’ (whatever that is) then the government should address unemployment through fiscal and other non-monetary policies. The U.S. is one of the few, since the institution of the dual mandate in the 1970s, that requires the Fed to equally consider ‘full employment’ and ‘stable prices/moderate interest rates’ (and it seems to me that ‘full employment’ is given more than even equal weight). Since the institution of this dual mandate how has it worked? Haven’t we gone from one asset bubble/bust to another?”, Mike Perry, former Chairman and CEO, IndyMac Bank


Jeremy Stein to Resign From Fed Board to Return to Harvard


APRIL 3, 2014


WASHINGTON — Jeremy C. Stein, a member of the Federal Reserve’s board who has raised concerns about its stimulus campaign, will resign at the end of May and return to his previous role at Harvard.

Mr. Stein, who joined the Fed in 2012, needed to return within two years to preserve his tenured professorship.

“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,” Mr. Stein wrote in a letter informing President Obama of his resignation, which was released by the Fed. He added, “There is undoubtedly more work to be done on both dimensions.”

Mr. Stein, an economist and noted academic, has helped to provide an intellectual rationale for the cautious evolution of the Fed’s stimulus campaign, which has not succeeded in returning either unemployment or inflation to normal levels.

He has argued that the Fed should temper its efforts to minimize unemployment because those policies encourage financial risk-taking, which can undermine long-term growth by destabilizing markets and causing new crises.


Jeremy Stein had been on the seven-member Fed board since 2012. 
Credit Larry Downing/Reuters

 “Monetary policy should be less accommodative — by which I mean that it should be willing to tolerate a larger forecast shortfall of the path of the unemployment rate from its full-employment level — when estimates of risk premiums in the bond market are abnormally low,” he said in a speech last month.

His views remain controversial. Many of Mr. Stein’s colleagues, including the Fed’s chairwoman, Janet L. Yellen, have said that they see no signs of dangerous overheating in financial markets. Some critics say Mr. Stein is focused on the last crisis instead of the present problem: high unemployment.

There is also a continuing debate about whether it ever makes sense to correct overheating in financial markets by raising interest rates. Many officials regard that as a crude tool, at best, because the effects are felt throughout the economy. Mr. Stein, however, sees this as a potential benefit, because the higher rates would potentially solve even problems that regulators did not notice.

Mr. Stein’s tenure will be among the shortest in recent Fed history; he had about four years left on his term. Frederic S. Mishkin, who resigned in 2008, was the last governor to serve less than two years.

“Jeremy has made important contributions and served as an intellectual leader during his time at the board,” Ms. Yellen said in a statement. “His understanding of monetary policy and markets as well as his expertise in banking and financial regulation has proven invaluable in his service to the Federal Reserve and the country.”

His departure could create a fourth vacancy on the seven-member board. Two nominees, Stanley Fischer and Lael Brainard, are awaiting Senate confirmation. Mr. Obama has not announced a nominee for a third vacancy, created last month when Sarah Bloom Raskin became deputy Treasury secretary.

A version of this article appears in print on April 4, 2014, on page B3 of the New York edition with the headline: Economist to Resign From Fed Board to Return to Harvard. 

Posted on April 7, 2014, in Postings. Bookmark the permalink. Leave a comment.

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