NEW YORK (CNN/Money) - New York Federal Reserve Bank President William J. McDonough plans to retire in July, according to an announcement Thursday by the New York Fed.

McDonough, 68, will end his career with the U.S. central bank -- he is also vice chairman of the bank's policy-making arm, second in power only to Chairman Alan Greenspan -- on July 21, 2003, the New York Fed said.

"I will greatly miss Bill McDonough's counsel and advice," Greenspan said in a statement. "After a decade of exemplary service to the Federal Reserve System, his retirement will leave a pronounced void."

William McDonough

As vice chairman, McDonough is also a permanent voting member of the Federal Open Market Committee (FOMC), the policy-making arm of the Fed, responsible for raising and lowering short-term interest rates to steer the economy toward growth and low inflation.

McDonough's name was often mentioned when economists speculated about potential replacements for Greenspan, 76, who is expected to retire within the next few years.

The New York Fed's chairman of the board, Peter G. Peterson, said he will form a search committee, made up of "prominent members of the business and financial community," to find a replacement for McDonough.

The committee's decision could have significant implications for the U.S. economy, as the New York Fed President -- a job once held by former Fed Chairman Paul Volcker -- is always the central bank's vice chairman and holds the only permanent voting position on the FOMC.

The New York Fed also does the grunt work for the Fed, putting policy directives into action in the New York markets.

Still, the New York Fed makes no policy of its own, strictly taking its cue from the central bank, and there are plenty of people inside and outside the New York Fed who could capably replace McDonough, Fed watchers said.

"I don't see this [retirement] as something that's going to create any kind of financial problems," said Allen Jacobson, a political analyst and Fed watcher with Washington Analysis.

Though no possible replacements surfaced immediately after the announcement, the job will likely be filled from within the banking industry, according to Allen Meltzer, an economist and Fed chronicler with the American Enterprise Institute.

McDonough, who began his tenure on July 19, 1993, following the retirement of E. Gerald Corrigan, did not reveal his future plans. He is the vice chairman of the Council on Foreign Relations and serves on the boards of the Carnegie Corporation, the New York Philharmonic Orchestra and other non-profit organizations.