New York Fed launches search for new president

Timothy Geithner, President-elect Barack Obama's pick to be Treasury secretary, will soon step down from his current post as president of the Federal Reserve Bank of New York.

The New York Fed announced Monday it has created a search committee to select Geithner's successor. Geithner will continue to serve as president "for the next several weeks," the New York Fed said.

Now that he's been tapped for the Treasury post, Geithner won't participate in decisions on interest rates and other economic and financial matters made by the Federal Open Market Committee, the Federal Reserve's chief policy-making group that includes Fed chairman Ben Bernanke.

The FOMC's next meeting is Dec. 15-16, and many economists predict the Fed will lower rates again to limit damage to the already crippled economy. Housing, credit and financial debacles have clobbered the economy, sending consumers and businesses alike into hibernation mode.

The nation's unemployment rate in October jumped to 6.5 percent, a 14-year high. Economic weakness and higher employment will persist well into next year, the Fed says.

Geithner has helped lead efforts at the Fed - working with the Bush administration - to rescue the nation from the worst financial crisis since the 1930s. He enjoys a close working relationship with Bernanke and with President George W. Bush's Treasury secretary, Henry Paulson.

Geithner is "a safe pair of hands," said Paulson, who praised Obama's selection anew on Monday in remarks about the nation's economic and financial conditions.

One of the most pressing decisions Geithner, widely expected to be confirmed by the Democratic senate, will face early on is deciding how to spend the next $350 billion installment of the $700 billion financial bailout package overseen by Treasury.

He could opt to stay the course charted by Paulson that focuses on using cash injections into companies to relieve credit problems. Or he could revive efforts to buy rotten mortgages and other toxic assets from financial institutions. That was the original centerpiece of the bailout package passed by Congress and signed into law by Bush in early October.

At the New York Fed, the search committee will be made up of Stephen Friedman, chairman of the bank's board of directors, and chairman of Stone Point Capital; and fellow New York Fed directors, Charles Wait, president and chief executive officer of The Adirondack Trust Co., and Denis Hughes, president of the New York State AFL-CIO.

Names mentioned as possible successors to Geithner include New York Fed executive William Dudley, who oversees the Fed's market operations, and Kevin Warsh, a governor at the Federal Reserve Board in Washington, D.C.