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Central bank nominees buck age trend

It used to be that a central banker could be distinguished by a head of gray hair and a few decades of experience.
/ Source: Reuters

It used to be that a central banker could be distinguished by a head of gray hair and a few decades of experience.

But the two nominees announced on Friday to join the Federal Reserve’s Board of Governors will be among the youngest to grace the halls at the hallowed U.S. central bank.

White House aide Kevin Warsh, 35, and former aide Randall Kroszner, 43, have compressed wide experience on Wall Street, academia and in Washington into their relatively brief resumes.

If the U.S. Senate approves the nominations, the two will dramatically shift the composition of the Fed’s seven-member Washington-based board toward youth, and somewhat more toward expertise in the finance sector rather than the macroeconomics background that has traditionally dominated the board.

Warsh and Kroszner’s combined ages total less than that of retiring Chairman Alan Greenspan, who is 79. Their arrival and Greenspan’s departure will bring down the average age of the Fed’s nucleus of monetary decision-making by around nine years, to 52, compared to where it stood before the current vacancies opened up.

“This kind of adds to the sense of a rookie in the institution. They are going to have to learn the ropes for a while before they are going to be influential,” said Lehman Brothers chief economist Ethan Harris.

Warsh is a former investment banker at Morgan Stanley and has been a member of the White House National Economic Council since 2002, where he focuses on domestic finance and capital market issues.

Kroszner, a professor at the University of Chicago Business School, specializes in international finance and financial regulatory issues, and is a former member of the White House Council of Economic Advisers.

If their nominations are approved, the Fed board will be back to full strength for the first time since last summer.

“They’re adding to the intellectual firepower of the board of governors in terms of regulatory and financial markets issues, but initially they won’t be important players in the monetary policy front,” said Harris.

He said the Fed’s monetary policy meetings will likely be dominated by new Chairman Ben Bernanke and long-time Fed staffer and now governor Don Kohn, both intellectual heavyweights with years of monetary policy experience.

The Washington-based board members vote on interest rates at every monetary policy meeting of the Fed, along with five of the 12 regional Federal Reserve Bank presidents who vote on a rotating basis.

The board of governors has always had members with experience on the banking and regulatory side as well as experts in macroeconomics, though the economists have usually been in the majority, analysts said.

“It would represent a bit of a shift from a macroeconomic focus to a banking/regulation focus,” said RBS Greenwich chief economist Stephen Stanley.

“I would posit the hypothesis that Bernanke will have somewhat more sway on monetary policy matters with a Board skewed toward banking types than he would if the Board was packed with macroeconomists,” he said.

Warsh will be the youngest Fed governor ever, beating Manuel Johnson who was not quite 37 when he was sworn in in 1986, and Lawrence Lindsey, who was just over 37 when he joined the board in 1991.

With these nominations and Greenspan’s departure, President George W. Bush will have either appointed or reappointed all the current members of the Fed Board.