Diamond said it would be easy to blame his failed nomination on partisan politics, in an op-ed piece first published on The New York Times website on Sunday and in its print edition on Monday. But a more troubling explanation, he wrote, was that Republicans failed to recognize the value of his decades spent analyzing what causes unemployment. He said such study is "crucial to conducting monetary policy."
"It is time for me to withdraw, as I plan to inform the White House," Diamond wrote.
His withdrawal was a setback for President Barack Obama, who had nominated and re-nominated Diamond to fill a vacancy on the seven-member board.
The White House said it was "deeply disappointed." Press secretary Jay Carney said Monday that Diamond "fell victim to partisan obstructionism." Carney said Obama believes Diamond would have brought knowledge and expertise to the Fed board.
The Fed often operates with vacancies on its board. The board hasn't had every seat filled since 2006.
Diamond's initial nomination fizzled when the Senate adjourned in December without acting on it. When Obama resubmitted the nomination in January to the newly convened Senate, the Republicans held six additional seats. That was expected to make the confirmation process more difficult.
Senate Republicans blocked a floor vote on Diamond's confirmation and have questioned his practical experience and research. Diamond is considered an authority on Social Security, pensions and taxation. He shared the Nobel Prize in economics that was awarded in October, with Diamond saying that his portion of the prize was for his work on unemployment and the labor market.
Diamond said the leading opponent to his appointment was the ranking Republican on the Senate Banking Committee, Richard C. Shelby of Alabama. Diamond said Shelby questioned how his academic work on pensions and the labor market fit with conducting monetary policy.
"But understanding the labor market - and the process by which workers and jobs come together and separate - is critical to devising an effective monetary policy," he wrote.
Diamond said he would continue as a professor at the Massachusetts Institute of Technology and would take advantage of opportunities presented to a Nobel laureate.
"I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can," he said.