In a surprise move, the president of the Federal Reserve Bank of Minneapolis announced Friday that he will step down in 2016.
Narayana Kocherlakota, who emphasized regional outreach and monetary policy transparency and presided over a high-profile shake-up at the Minneapolis Fed’s research division, told the board of directors that he will leave when his term ends in February 2016.
The former economics professor took over in 2009, “so that I could be of service to my country in an economic emergency,” he said.
“I have been honored to play a role in shaping the response to that dire situation,” he said in a statement. “While challenges lie ahead for the Federal Reserve System, the state of crisis has passed, and I have decided not to continue my service into a new term.”
Kocherlakota, 51, has made a name for himself as one of the most dovish members of the policy-setting Federal Open Market Committee — meaning he is in favor of aggressive monetary stimulus and keeping interest rates low. Once considered an inflation hawk, he re-evaluated the data over his first two years as president and emerged in the past three years as a strong voice for continued economic stimulus.
He also has been an advocate for the Fed to articulate its aims and strategies more explicitly.
His exit won’t have much obvious effect on monetary policy. He has been consistently overruled since becoming a voting member of the FOMC at the beginning of 2014. He dissented in October when the committee voted to end the bond-buying program known as quantitative easing. Yet a majority of members appear more anxious than he is to tighten monetary policy and raise interest rates.
“His dissent or his views won’t be enough to prevent the Fed from continuing to raise rates if the majority sees fit to do so,” said Craig Bishop, a fixed income analyst at RBC Wealth Management. “The Minneapolis Fed is not necessarily one that is looked at to move the needle.”
Two other Federal Reserve bank presidents — Charles Plosser in Philadelphia and Richard Fisher in Dallas — both considered more hawkish, will be quitting next year. Presidents of Federal Reserve Banks serve five-year terms. The Minneapolis board of directors will now have more than a year to find a replacement for Kocherlakota.
“Narayana surprised us, but he also did us a favor by giving us plenty of warning,” said Randy Hogan, chairman of the Minneapolis Fed’s board of directors and CEO of Pentair PLC.
Hogan said Kocherlakota’s contributions include an emphasis on outreach in the district, which encompasses Michigan’s Upper Peninsula, northern Wisconsin, Minnesota, North Dakota, South Dakota and Montana. The bank president has visited dozens of places around the district — from Butte, Mont., to Rapid City, S.D., to Fargo, N.D., and Houghton, Mich., — to make speeches and hear from the business community.
“He has one of the most lucid intellects that I’ve ever encountered,” Hogan said. “To be smart is one thing. To be smart and be able to take complex things and simplify them enough to explain them generally is a remarkable talent, and his is that.”
The officers and board of the bank made a trip to the Bakken oil patch in 2012, and Hogan remembers walking through the parking lot at a temporary camp with Kocherlakota, looking at license plates from all over the country.
Kocherlakota declined to be interviewed, citing a quiet period ahead of the FOMC’s meeting next week. It’s not clear what his next move will be.
“I’m sure he has something else in mind,” Hogan said. “What he wanted to do was tell us of his decision and then be very open about what he wants to do next.”
Before his appointment as president, Kocherlakota served as a member of the Minneapolis Fed’s research staff, as well as a research consultant for the bank. His prior experience also includes professorships at the University of Minnesota, where he was chairman of the economics department, and at Stanford University.
Late in 2013, Kocherlakota came under some criticism nationally after well-regarded research economists Patrick Kehoe and Ellen McGrattan exited the bank. Both were later reinstated.
In a statement, Kocherlakota called his time as president of the Minneapolis Fed the “most rewarding period of my professional career” and he called his colleagues at the Fed “fantastic contributors to their country.”
“I have been humbled on a daily basis by their knowledge, their talent and their dedication,” he said. “It has been an enormous honor for me to serve the public with them.”