On Monday, Randal Quarles tendered his resignation from the Federal Reserve Board, opening new opportunities for the Biden administration to shape policy at the central bank.
"Given the completion last month of my term as Vice Chairman for Supervision of the Board, I intend to resign my position as a Governor of the Federal Reserve during or around the last week of December of this year," wrote Quarles in a brief two-sentence letter addressed to the President.
In a release, the Federal Reserve Board said Quarles "played a central role in ensuring the safe operation of both the domestic and international financial systems during the stress of the COVID event."
Quarles joined the Reserve board in 2017 and made a name for himself as Vice Chair for Supervision by pedaling back certain Dodd-Frank era regulations, much to the chagrin of progressive Democrats.
"Our financial system will be safer when you are gone," said Senator Elizabeth Warren (D-MA) to Mr. Quarles in May. "Instead of protecting the system, you spent your time at the Fed cutting holes in the safety net whenever you could."
Nevertheless, Quarles deserves credit for shoring up the financial system during the pandemic, Mark Sobel, a 40 year veteran of the Treasury Department, told the Wall Street Journal.
In addition to leaving behind a nuanced legacy, Quarles also leaves behind an empty seat on the seven-person Federal Reserve Board. One Democrat, Lael Brainard, already sits on the board.
With the exit of Fed Vice Chair Richard Clarida next year, in addition to another vacancy, Quarles' exit gives President Biden a total of three vaccines to fill and the chance for Democrats to carve out a controlling interest at the Fed.
Meanwhile, President Joe Biden faces an imminent choice whether or not to reappoint Jerome Powell as Fed chairman. Some Progressives Democrats have called for Powell's outsing, citing the Fed's lack of action on issues like the climate crisis and economic inequity.
Centrist Democrats contend that Powell's bipartisan support gives him a greater mandate to lead the Fed, a mandate a more partisan chair might not receive.
Having four seats on the Reserve could "mollify progressives and shift the balance of sentiment on the Fed board and shift the balance of sentiment on the Fed board on issues such as bank regulation and climate change," Krishna Guha, vice-chair of Evercore ISI, told The Wall Street Journal, if Biden chooses to reappoint Chairman Powell.
Last week, the appearance of the aforementioned Lael Brainard alongside Powell at the White House raised a considerable stir among Fed watchers. Bloomberg later reported that Brainard had been interviewed to lead the central bank during her visit to the White House.
Whoever ends up on the Reserve Board, and whoever lends up leading it, the Fed has a narrow path to tread.
On Wednesday, stocks sank on news that the consumer price index rose 6.2% in October, year over year, the sharpest annual spike since 1990.
Meanwhile, the Fed's favored gauge of inflation sits at 4.4%, far and above the Fed's 2% target.
The Fed claims that today's inflation is transitory and related to yet unresolved supply chain issues that sprang up during the pandemic.
Regardless, the central bank must neither raise interest rates too quickly in response to inflation nor raise interest rates too slowly should wages rise and a traditional inflation cycle set in.