Federal Reserve to gain as Jack Lew comes in as new Treasury secretary

WASHINGTON: Timothy Geithner's replacement by Jack Lew as Treasury secretary will end a period of unusually strong ties between the department and the Federal Reserve. For the Fed, the result may be less insulation from critics, yet greater influence in financial market regulation.

Geithner worked closely with Fed chairman Ben Bernanke in fighting the financial crisis and cleaning up its aftermath, first as head of the Federal Reserve Bank of New York and then as Treasury secretary. Going through the "searing experience of the panic together" created a bond between the two that "you get from that kind of combat," Geithner said in a 2010.

"You've never had a secretary with the type of credentials" that Geithner had, including his relationships and knowledge as a former Fed insider, said Edwin Truman, who has worked at both the central bank and under Geithner at the Treasury.

Geithner's departure means the central bank will lose a strong ally inside the executive branch who helped protect the Fed from efforts by both Republican and Democratic lawmakers to rein in its power. While Lew would have no more sympathy than Geithner for assaults on the Fed, "I don't expect him to be as defensive of the Fed and as quick to attack those things as Geithner would be," said Mark Calabria, a former aide at the Senate Banking Committee to Alabama Republican Richard Shelby.

Lew, 57, also lacks the experience that the 51-year-old Geithner had with international financial markets and regulation, leaving an opening for others inside the government, including at the Fed, to gain more sway in that area.

The anticipated nomination of Lew to head the Treasury highlights a shift in the economic priorities of the Obama administration, away from battling the crisis and overhauling financial regulation to working with Congress to tackle a budget deficit that's topped $1 trillion for four straight years.