THE FEDERAL RESERVE is facing a backlash over its lack of diversity in key positions after it emerged this weekend that John Williams, the current president of the San Francisco regional branch, is a front-runner to succeed William Dudley as head of the powerful New York Fed.
It’s one of the most important roles in global central banking. The Fed’s New York branch oversees Wall Street and holds a permanent vote on monetary policy. The bank’s own search committee emphasized a diverse process to fill it, hiring a search firm that specializes in identifying minority and women candidates.
Yet New York Fed directors have identified Williams, 55, a respected macro-economist who is also white, as one of the front runners for the job, said a source speaking on the condition of anonymity.
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.
Many observers see that choice as a disappointing end to a process that has passed over several well-credentialed candidates including Peter Blair Henry, dean emeritus of New York University’s Leonard N. Stern School of Business, who is black, and women including former US Treasury official Mary J. Miller. The news also comes at a time when Donald Trump’s administration has reportedly settled on Richard Clarida, another white male, as the front-runner to fill the open vice-chairman role on the White House-nominated Fed Board.
“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 e-mail. She pointed out that Williams has shown little interest in market functioning.
Williams is a top monetary economist and a career central banker who succeeded Janet Yellen to head the San Francisco Fed — the largest regional branch after New York. He’s popular within his bank, well-known for his research and is seen as a thought leader on the Federal Open Market Committee.
But Williams often says he looks past day-to-day market moves and points out that he does not have a Bloomberg terminal on his desk. That makes sense for a long-run-oriented economist, but makes him something of an odd pick for the New York job, which has historically required a careful eye on markets and banks.
The choice “would mean the search committee and the chair (who must sign off on the New York Fed president selection) would in effect have chosen to prioritize monetary policy expertise over first-hand experience of financial markets and diversity considerations pushed by some,” Krishna Guha, vice chairman at Evercore ISI, wrote in a note to clients.
To be sure, Williams could delegate market-related responsibilities. The New York Fed’s markets group is led by Simon Potter, who successfully managed the liftoff from zero interest rates in December 2015 and a smooth start to gradually shrinking the Fed’s balance sheet.
POLICY CONTINUITY
While Williams’ appointment would continue the bank’s history of white, male leadership, it could also mark another type of continuity: even-keel monetary policy.
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 low neutral rates.
Clarida was on the Pimco research team when it was focused on a so-called “new normal” of low interest rates, Guha wrote, and a leadership trio of Williams, Clarida and Chairman Jerome Powell could view the long-run neutral rate as lower, though they’d still lift rates into restrictive territory to prevent overheating.
Still, criticism over lack of diversity could pose a real problem.
“We are dismayed by the prospective failure to appoint someone who reflects the diversity of the district and the opaque process by which he was selected,” said Jordan Haedtler, campaign manager for Fed Up, an advocacy group that has pushed for greater Fed diversity.
The New York Fed search committee did lay out its process for selecting a new chair after Dudley announced his impending retirement in November 2017. It consulted widely and met with a number of prospective candidates. But as the shortlist narrowed, visibility of the process waned. Push-back over a Williams’ pick could bring renewed scrutiny.
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.”
The regional banks, including New York, operate as quasi-private institutions in which non-banking directors select leaders. The process happens outside of the public eye. Legislation introduced in the Senate sought to make the New York Fed chief a Senate-confirmed presidential nominee, which is how fully public Board of Governors members are selected. It never made it into US law.
Fed Up has been calling for a more public process for regional president selection, and said it would renew its push for reform.
Lawmakers are already focused on the selection process, as shown by a Bloomberg View article published Monday by Senator Cory Booker, a Democrat from New Jersey.
“The New York Fed has never had a woman or a person of color at its helm, and the Federal Reserve Bank only just last year added its first black regional bank president,” Booker writes in the piece. “If we’re serious about creating an inclusive and sustainable economy, no one should be left on the sidelines.”
Senator Elizabeth Warren, a Democrat from Massachusetts, said in a statement later Monday that if Williams is selected, he and the co-chairs of the New York Fed’s search committee should “testify before the Senate Banking Committee about his qualifications and the process that led to his selection.” — Bloomberg
