Philly Fed Chief Santomero to Leave in 2006

The President of the Federal Reserve Bank of Philadelphia, Anthony Santomero, plans to step down early next year, leaving a third vacancy at the top of the central bank in a period of unusually high turnover.

Santomero's resignation is the latest change at the U.S. central bank since the White House nominated Ben Bernanke to replace Alan Greenspan as chairman of the Federal Reserve after he retires in January.

Two vacancies remain on the Fed's board of governors, and Santomero's departure will bring to six the number of regional Fed bank presidents who have left in recent years.

"While this is a normal turnover in the corporate world, it is huge turnover at the top by Federal Reserve standards," said longtime Fed-watcher Tom Schlesinger, of the independent Financial Markets Center.

"Bernanke has more of an empty slate to draw on. It will be an interesting group dynamic in having a sizeable cohort in the Open Market Committee who are all relative newbies," he said.

The head of the search committee told Reuters she will be looking first within the ranks of the Federal Reserve for a replacement, then turn to an outside search firm if need be.

"We probably would consider that (an outside search firm), if we are not satisfied with the candidates coming from within the Federal Reserve System," said Doris Damm, newly appointed chairwoman of the Philadelphia Fed's board of directors.

Santomero's announcement took Fed-watchers, and the Fed Bank's board of directors, by surprise.

"We were just advised of this at the board meeting yesterday," Damm said in a telephone interview.

She said the search will begin early in the new year and will focus on someone with monetary policy and business experience.

Santomero is considered a centrist on monetary policy and did not dissent on any policy decisions during his tenure.

He became an advocate of an inflation-targeting regime for the Fed, commonly used in other countries, in which the central bank uses an explicit target range for inflation to help guide policy decisions.

So his departure may mean one less ally on the Fed's policy-setting Federal Open Market Committee for Bernanke, who has stated he hopes to move the Fed toward targeting. The committee is divided over the need for an inflation target.

In a statement, the Philadelphia Fed said Santomero will step down on March 31, ending a five-and-a-half year stint.

Greenspan described Santomero as "a valued voice of wisdom at our meeting table."

"We at the Federal Reserve have greatly benefited from his perspective and keen insights," Greenspan said in a statement.

Santomero was a voting member this year on the FOMC, which governs monetary policy by setting the level of interest rates.

Next year, the Philadelphia Fed president will not be a voting member of the FOMC, under the rotating system that gives regional Fed presidents a vote every second or third year.

"The president's choice of Ben Bernanke is an excellent one, and the Federal Reserve is in good hands," Santomero said in a statement. "However, if I am to move on to one more new career, now is the opportune time to make the transition," he added.

Santomero's resignation continues a period of unusually high turnover at the Fed.

Two positions have been vacant for months on the Board of Governors, while new presidents have been appointed to the regional Fed banks of New York, San Francisco, Dallas, Cleveland and Richmond in the past three years.

A new head at Philadelphia will bring the number of new faces during that time to six -- half of the regional banks in the system -- after a long period of stability.

In a sign that the Bush administration is aware of the delays in filling these vacancies, White House spokesman Scott McClellan said on Friday that the administration wanted to make sure "the right people" were chosen.

"We are moving forward as quickly as we can," McClellan told a news briefing in response to a reporter question.

Santomero joined the Fed in July, 2000, after a 30-year career at the University of Pennsylvania's Wharton School.