Democrats criticize choice of new leader at Fed's N.Y. branch

In this Oct. 30, 2015, file photo John Williams, president of the Federal Reserve Bank of San Francisco, is interviewed by The Associated Press in Washington.
In this Oct. 30, 2015, file photo John Williams, president of the Federal Reserve Bank of San Francisco, is interviewed by The Associated Press in Washington.

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 increases 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 increases. 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 chairman. Though he is a respected economist, critics wanting more Fed diversity reacted negatively to reports in recent days that Williams, who is white, 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 President Donald Trump's 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 adviser to Pacific Investment Management Co. 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-chairmen 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.

Powell, a former private-equity executive, is the first Fed chairman in three decades not to have a doctorate in economics, so it could be useful for him to have a top economist and experienced monetary policymaker 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 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 Federal Open Market Committee. 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 Fed 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.

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 after 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 increases 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 Sen. Kirsten Gillibrand of New York called for a public confirmation hearing for New York Fed presidents. Her Democratic colleague, Sen. Elizabeth Warren of Massachusetts, said Williams and the co-chairmen 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.

Business on 04/04/2018

Upcoming Events