EDITOR NOTE: Boston Fed President Eric Rosengren and Dallas Fed Bank CEO and President Robert Kaplan abruptly resigned their posts yesterday amidst a major ethics scandal. The two high-ranking officials made millions during the pandemic selling financial assets that they had a hand in regulating. Rosengren blamed his resignation on a “worsening of a kidney condition he has had for many years,” while Kaplan did admit that “the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work.” The questions now become, will Fed Chairman Jerome Powell follow suit due to his similar ethical violations? And, if so, who steps up as the next leader of the Fed?
Boston Fed President Eric Rosengren, one of the senior Fed officials caught up in the trading disclosures scandal earlier this month, has abruptly decided to retire on Sept. 30, newswires report.
His first vice president, Kenneth Montgomery, will assume the role of interim president and CEO of the Boston Fed bank until a permanent replacement can be found. But crucially, as of now, Montgomery will be the one casting the Boston Fed's vote on the FOMC starting next year, unless a permanent replacement for Rosengren can be found more quickly.
While many have already likely assumed Rosengren's departure is related to the trading ethics scandal (and he was not the only senior Fed official to have been ensnared, with his colleague Robert Kaplan in Dallas and even Powell to an extent), according to Rosengren, he has a kidney condition, and staving off dialysis is dependent on him making "lifestyle changes". Previously, he had planned on retiring in June 2022, in according with the mandatory retirement at 65 rule.
In a message to the Bank’s staff, Dr. Rosengren revealed for the first time that he qualified for the kidney transplant list in June of 2020, during the pandemic, upon the worsening of a kidney condition he has had for many years. Delaying the need for dialysis might be improved if he makes lifestyle changes now to lessen the risks of his condition.
Rosengren said, “It has been an honor to serve at the Federal Reserve System, in a job where one can be constantly engaged in pursuing the economic and financial well-being of the country and New England. I know that my colleagues will build on our progress, and continue making a difference for the public we serve.”
There were notably calls from some for the officials involved to step down from the Fed in the wake of the ethics scandal. Chair Powell has already ordered a formal review.
Fed Chairman Jerome Powell has already released a statement: "Eric has distinguished himself time and again during more than three decades of dedicated public service in the Federal Reserve System. He led the Fed's work in managing several emergency lending facilities in two separate periods of economic crisis. In addition to his monetary policy insights, Eric brought a relentless focus on how best to ensure the stability of the financial system. My colleagues and I will miss him."
As has Dr. Christina Paxson, the president of Brown University and chair of the Bank’s board of directors: "Eric’s leadership has been outstanding on so many fronts. As a result of his tireless work, the Bank is making cutting-edge contributions across all its functions, and positively affecting the economic and financial security of people in New England and the nation. His commitment to ‘Main Street’ economic issues and opportunity for all has inspired his staff, colleagues, and countless others to innovate in service to the public. And let me add that Eric is one of those rare people who combines the highest standards of intellectual rigor with the warmest collegiality, inclusiveness, and humanity. The directors wish him the very best as he focuses on improving his health."
Rosengren's premature departure from the FOMC will have a major impact on the pace of Fed policy since he would have become a voter in 2022, and is known for his hawkish stance.
And as for Rosengren's kidney issue, we can't help but wonder: is this a recent development? It's not for us to speculate but the timing certainly seems...curious.
Rosengren retires because of health issues. From a week ago: He "made as many as 37 separate trades in the four REITS while the Fed purchased almost $700 billion in mortgage backed securities". https://t.co/81ubXGqmOI
— Quoth the Raven (@QTRResearch) September 27, 2021
While we trust Rosengren's health issue is serious, some couldn't resist cracking a joke (with a kernel of truth: Rosengren agreed to sell his entire portfolio of stocks after the trading disclosures).
*BOSTON FED ISSUES STATEMENT ON ROSENGREN RETIRING SEPT. 30
More time for day trading pic.twitter.com/7N0oVIg4xi
— Viraj Patel (@VPatelFX) September 27, 2021
Readers can find Rosengren's complete resignation letter to Powell below:
As far as succession goes, the Boston Fed's search committee will consist of the six non-banker board of directors members, and will be chaired by Dr. Paxson. According to US = law, only directors not affiliated with regulated banks or financial institutions are eligible to help select a Federal Reserve Bank president. The choice must be approved by the Federal Reserve’s Board of Governors.
Originally Posted on ZeroHedge