Fed's Williams Shifts to N.Y. as Powell Shapes Policy Troika
The career Fed economist will help supervise Wall Street firms.
(Bloomberg) -- Federal Reserve Bank of San Francisco President John Williams was selected to run the U.S. central bank’s powerful New York branch, installing a monetary economist in Fed Chairman Jerome Powell’s inner circle and a banking-industry outsider to help oversee Wall Street.
Williams, who will replace William Dudley as New York Fed president effective June 18, has spent most of his career at the Fed and is considered a centrist on monetary policy. Williams recently said that he favors the largely consensus view of three to four rate hikes this year.
As head of the New York Fed, he will have oversight of the nation’s biggest banks and wield a permanent vote on monetary policy as Powell weighs the pace of interest-rate hikes. The U.S. labor market is roaring but inflation remains slightly below the Fed’s 2 percent goal.
Williams, 55, took over his current position in 2011 from Janet Yellen after she moved to Washington. She went on to become Fed chair. Though he is a respected economist, critics wanting more Fed diversity reacted negatively to reports in recent days that Williams, a white male, was the front runner for the job. Democratic senators have demanded public hearings on the choice.
Williams often states his reluctance to monitor financial-market gyrations that consume Wall Street. He won’t have that academic luxury any longer. The New York Fed staff is entrusted with briefing Fed officials on what those markets are saying about monetary policy and the economy, and New York Fed presidents are routinely asked about their views on everything from bond market liquidity to bank governance and capital.
Williams’ selection also comes as the Trump administration has reportedly settled on Richard Clarida as the front runner to fill the open vice chairman role on the White House-nominated Fed Board. If the Pimco adviser is nominated and confirmed by the Senate, he, Williams and Powell will round out the leadership troika who have steered monetary policy in recent years.
Williams was also in the running for the vice chairman position in January. Despite that, the New York Fed search committee co-chairs said he was a candidate for the reserve bank job throughout the process.
Williams was selected by the New York Fed’s board and was approved by the Fed Board in Washington. The position doesn’t require Senate confirmation.
Inner Circle
Powell, a former private-equity executive, is the first Fed chairman in three decades to not have a Ph.D. in economics, so it could be useful for him to have a top economist and experienced monetary policy maker in his inner circle. Powell and his fellow governors in Washington don’t formally make the selection of regional Fed bank presidents, but they weigh in throughout the process and effectively have a veto because they vote on the final pick.
In a statement on Tuesday, Powell called Williams a “distinguished thought-leader in monetary policy making” whom he looks forward to working with in the years ahead.
In his new job, Williams will serve as vice chairman of the FOMC. He has pushed the central bank to rethink its longer-run framework to create more policy firepower in an era of persistently low interest rates. Options include increasing the central bank’s inflation target or aiming to average 2 percent over time.
Williams has a doctorate in economics from Stanford University, where he studied under John Taylor, the author of a widely used monetary policy rule that bears his name. Williams joined the Board in Washington as an economist in 1994 and, apart from a stint on President Bill Clinton’s Council of Economic Advisers, has worked almost entirely at the central bank. He moved to the San Francisco Fed in 2002 and became its research director in 2009.
Gradual Tightening
With co-author Thomas Laubach, Williams has done groundbreaking research on the neutral interest rate, a theoretical level that neither stokes nor slows growth. The realization that the neutral rate had fallen helped shape the Fed’s ultra-cautious approach to raising interest rates following the financial crisis. The central bank has raised rates six times since December 2015 and, according to the median estimate of officials’ most recent forecasts, has two more hikes penciled in for this year after one in March.
Directors at the New York Fed set out to make the search for Dudley’s successor transparent and to include a diverse slate of candidates. Reports that Williams was the front runner provoked a swift backlash.
Democratic Senator Kirsten Gillibrand of New York called for a public confirmation hearing for New York Fed presidents. Her Democratic colleague, Elizabeth Warren of Massachusetts, said Williams and the co-chairs of the New York Fed’s search committee should testify before the Senate Banking Committee before his selection is confirmed. Without Republican support, neither will happen.
Williams’ appointment will leave the San Francisco Fed job open. Mark Gould, first vice president in San Francisco, will serve as the bank’s interim president, the branch said in a statement. A search committee will start looking for a permanent replacement, though additional information about that process will be communicated “at a later date.”
While candidates on Wall Street are already considering putting their names in the hat, Mary Daly, research director at the San Francisco Fed, is often cited as a top contender for the job. Her research is widely referenced by the Fed’s top brass.
Glenn Rudebusch, executive vice president and senior policy adviser at the regional bank, is another candidate who could be a potential successor.
To contact the reporters on this story: Jeanna Smialek in New York at jsmialek1@bloomberg.net, Matthew Boesler in New York at mboesler1@bloomberg.net, Craig Torres in Washington at ctorres3@bloomberg.net.
To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor
©2018 Bloomberg L.P.