WASHINGTON – Donald Kohn, the second-highest ranking official at the Federal Reserve, announced Monday that he will leave at the end of June, giving President Obama a chance to put a bigger imprint on the central bank.

Kohn, 67, has played a major role in shaping the Fed’s strategy in fighting the worst financial and economic crises to hit the country since the Great Depression.

His departure will open up a third seat on the seven-member Federal Reserve board in Washington. Board members are picked by the president and must be confirmed by the Senate.

The president will need to pick candidates who appeal to Democrats and aren’t objectionable to Republicans. This in an election year, where many Americans are upset with Obama about Wall Street bailouts, unemployment and home foreclosures.

Earlier this year, Democrats lost their filibuster-proof Senate majority in a Massachusetts special election, highlighting the challenges they have in selling their message to voters.

Against that political backdrop, Fed Chairman Ben Bernanke had to wage a bruising battle in the Senate to garner enough support to secure a second, four-year term. The 70-30 Senate vote in January was the closest ever for the post.

In selecting new Fed members, Obama “needs to stand up to this populism” and not be afraid to pick people with the right economic and financial credentials even if they had worked on Wall Street or in the banking industry, said Anil Kashyap, professor of economics and finance at the University of Chicago’s Graduate School of Business.

The battle over Bernanke’s confirmation was seen as a test of central bank independence, a crucial element if the Fed is to carry out unpopular but economically essential policies.

Its decisions on interest rates can have immense consequences, from the success or failure of the largest companies to the typical home buyer’s ability to get an affordable loan to the price of cereal at the grocery or gas at the corner station.

Besides tapping Bernanke for a second term, Obama picked Daniel Tarullo, a former Georgetown law professor, to serve on the Fed.


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