Architect of Fed’s ‘Operation Twist’ quits

Posted on April 5, 2012

Brian Sack, head of the trading desk at the New York Federal Reserve, who was at the centre of the central bank’s extraordinary intervention in financial markets, has resigned from his position and will leave in September.

He will remain in his current role as executive vice-president of the markets group and manager of the system open market account for the Federal Open Market Committee, until June.

That is when the Fed’s Operation Twist, in which it is buying longer term bonds in an effort to force down interest rates, and of which Mr Sack was one of the intellectual architects, comes to an end. He will act as an adviser until he leaves in September.

“Brian’s service to the Bank over the past three years has been critical to our response to the financial crisis and the country’s economic recovery,” said William Dudley, president of the New York Fed. “I accepted his resignation with great regret and wish him well.”

Mr Sack has not yet taken a new position outside the bank, according a person close to the situation. But if he chooses to go to Wall Street he will be highly sought after.

“Certainly at that level the public-to-private mobility is pretty high,” said the head of a trading division. “He’s a talented guy in his own right and having had the inside look – especially because the Fed eventually will have to dispose of assets … how to play those situations – he’d be a resource.”

Mr Sack joined the New York Fed in June 2009 and has overseen an unprecedented period of market intervention. Ben Bernanke, Fed chairman, has moved aggressively to combat fears of deflation and recession by, in addition to setting core interest rates at near-zero, providing market liquidity through buying mortgages and Treasuries, known as “quantitative easing”.

The Fed’s balance sheet has grown from $2.1tn when he began to $2.7tn at the end of last year. Yields on benchmark 10-year Treasury notes earlier touched their lowest level in six decades.

The moves have also attracted criticism that the Fed is distorting markets through its activity. Last year, the New York Fed’s trading desk conducted 188 Treasury securities transactions in 2011, purchasing $773bn and selling $134bn. It also made 495 transactions in mortgage securities, buying $77bn.

An annual report published by Soma this week said: “The [NY Fed trading desk] has been able to implement the asset programmes in a manner that has met the directives set out by the FOMC while limiting disruptions to the functioning of financial markets.”

Mr Sack took up his current role when Mr Dudley became president of the New York Fed, and had been widely seen as a possible successor to the president job.

A Massachusetts Institute of Technology economist by training, Mr Sack previously worked at Macroeconomic Advisors, an influential economics forecasting firm founded by Laurence Meyer, a former Fed governor, and as an economist for the Fed board of governors. His academic research included subjects such as central banks buying longer duration bonds.

As part of the New York Fed’s code of conduct, Mr Sack will be able to take any job in the private sector, but cannot have “substantive business contacts” with the New York Fed for one year after he leaves.

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