By Ann Saphir
(Reuters) - Philadelphia Federal Reserve Bank President Charles Plosser, one of the sharpest internal critics of the central bank's loose monetary policy, will retire next year, in a departure that could ease pressure to raise interest rates more quickly.
Plosser, 66, has dissented on policy decisions six times during his eight-year stint at the Fed, including at the central bank's last two meetings.
He has frequently argued that the Fed's aggressive easing of monetary policy could spark inflation, and in July and September he broke with colleagues over the central bank's pledge to keep rates near zero for a "considerable time" after a bond-buying stimulus program ends.
The former economics professor will step down on March 1, the Philadelphia Fed said in a statement on Monday.
Regional Fed presidents generally face mandatory retirement after 65, although the rules would have allowed Plosser to stay until 2016.
"President Plosser's decision to retire is a personal one that he has carefully considered for some time," Plosser's spokeswoman said. Plosser has no immediate post-retirement plans and will actively consider his next steps only after he had left the Fed, she added.
The tenor of the debate at the policy-setting Federal Open Market Committee could change with Plosser's departure and the impending retirement of Dallas Fed chief Richard Fisher, who like Plosser is one of the central bank's most vocal inflation hawks. Both take to the public podium frequently.
"The absence of Plosser and Fisher will certainly be felt," said OSK-DMG economist Tom Lam. Because of their "hardcore" views, he said, they may play a role in balancing market expectations about a Fed that may otherwise be perceived as dovish.
Although the chiefs of the Philadelphia and Dallas Fed will not have a vote on monetary policy next year, all 12 Fed bank presidents take part in the central bank's meetings, and decisions often incorporate views of both voters and non-voters.
Fisher, 65, had said previously he planned to leave the Fed in April.
"The retirement of Fisher and Plosser in 2015 could potentially shift the composition at the FOMC in a less hawkish direction," said Millan Mulraine, deputy chief economist at TD Securities in New York.
Still, Mulraine and other economists said the impact may be muted, in part because regional Fed banks often replace their leaders with like-minded policymakers.
"In terms of what this means for near-term policy, not that much," said Paul Dales, senior U.S. economist at Capital Economics. He said, however, that "on the margins" it could make the central bank more inclined to move slowly in raising rates.
The Fed has held benchmark overnight borrowing costs near zero since December 2008 and has more than quadrupled its balance sheet to $4.4 trillion through a series of large-scale bond purchase programs. Financial markets expect it to reverse course with a rate increase in mid-2015.
Fed Chair Janet Yellen is often viewed as a dove because she has emphasized the plight of the unemployed and has fully supported the Fed's easing of monetary policy.
Her legacy, however, will turn on her ability to shift the central bank from the accommodative stance it has had since the financial crisis to a tighter, more restrictive one.
Plosser and Fisher's successors will be chosen by business leaders in their respective regions, with the approval of the Washington-based Fed Board.
Swarthmore Group founder James Nevels, chairman of the Philadelphia Fed's board, and Comcast Corp Vice Chairman Michael Angelakis, the regional bank board's vice chairman, will co-chair a committee to search for a successor to Plosser.
"The search committee will look at a broad, diverse group of candidates from inside and outside the Federal Reserve System," said Angelakis. "We will seek individuals who have the economic and leadership experience to be an effective policymaker and the chief executive of the bank."
(Reporting by Ann Saphir in San Francisco; Additional reporting by Michael Flaherty in Washington; Editing by James Dalgleish, Chizu Nomiyama and Steve Orlofsky)