San Francisco's Williams Seen on N.Y. Fed Shortlist

(Bloomberg) -- Federal Reserve Bank of San Francisco President John Williams is a front-runner to replace William Dudley as head of the New York Fed, said a source speaking on the condition of anonymity.

San Francisco's Williams Seen on N.Y. Fed Shortlist

Williams, 55, has led the Fed’s 12th district bank since 2011, when he took the reins from Janet Yellen, who ultimately went on to become Fed chair before stepping down Feb. 3 after four years at the helm. He’s a career Fed policy maker and economist, though he’s also lectured at Stanford University and served as a senior economist on President Bill Clinton’s Council of Economic Advisers.

Dudley, 65, has said he plans to step down by mid-year. The New York Fed presidency, which has a permanent vote on the policy-setting Federal Open Market Committee, is one of the three most powerful positions in the U.S. central bank because of its close oversight of and interaction with financial markets and Wall Street firms.

Earlier this month, New York Fed directors said they had narrowed their search for the bank’s next president to a “handful of final candidates,” without naming any of those still in the running or the timetable for announcing their selection.

The Wall Street Journal on Saturday reported Williams was the leading candidate, though a final decision on whom to select has not yet been made. Spokesmen for the New York Fed, San Francisco Fed and Fed Board in Washington all declined to comment on the Journal’s report.

Williams, a policy centrist and a 2018 voter, has recently said he favors three to four rate increases this year. At the same time, he’s pushing the Fed to rethink its longer-run framework to create more policy firepower in an era of persistently low interest rates.

The news of Williams’ possible selection for New York also comes at a time when President Donald Trump’s administration has reportedly settled on Pimco global strategic adviser Richard Clarida as the front-runner to fill the open vice chairman role on the White House-nominated Fed Board.

Clarida was on the Pimco research team when it was focused on a so-called “new normal” of low neutral interest rates, a theoretical level of rates that neither speeds up nor slows down the economy, which chimes with Williams’ own findings.

If Williams and Clarida were the choices, their partnership with Chairman Jerome Powell would favor continuing with gradual rate hikes, though perhaps they’d view the neutral rate as lower in the long run, according to Krishna Guha, vice chairman at Evercore ISI.

“Both Williams and Clarida appear cautious on the longer-run neutral federal funds rate, and wary of jumping to the conclusion that it will be significantly higher than the Fed estimated in recent years,” he wrote in a note to clients. “We think they would both favor four hikes this year.”

Diversity Push

While his resume includes many of the qualifications for the job, Williams’ possible shift to New York might draw criticism about the lack of gender and racial diversity in the upper ranks of the Fed.

Better Markets, a Washington-based non-profit group founded after the financial crisis to promote support Wall Street reform, said if Williams was selected it would show “the Fed continues to be a black box, keeping the public in the dark about what it does and why.”

Members of the Fed’s Washington-based board of governors are nominated by the president and confirmed by the Senate. The 12 regional bank chiefs are chosen by non-banking directors of their respective boards and then are subject to approval by Fed governors.

“The pick seems to reinforce the status quo that a woman has to be absolutely perfectly qualified to get top positions while a man can have significant shortfalls in his resume and still come out ahead,” Julia Coronado, founder of MacroPolicy Perspectives and a member of the New York Fed’s economic advisory panel, said in an email. She pointed out that Williams in his time at San Francisco has shown little interest in market functioning, which is traditionally an important focus in New York.

©2018 Bloomberg L.P.

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