San Francisco Federal Reserve Bank President John Williams is a front-runner in the search for the next leader of the New York Fed, but a final decision has not yet been made, according to news reports.
Williams' name popped up over the weekend in The Wall Street Journal, which reported that the New York Fed's board of directors "recommended" him for the role. But a Bloomberg News report March 26 said Williams is on a shortlist of final candidates, citing an anonymous source, adding "the simple fact that there’s still a list — and not a single candidate — means the search is in the informal vetting stages."
The position is critical inside the Federal Reserve System since the New York Fed is the chief financial regulator for some of the country's largest financial institutions and it implements the policies set by the Federal Open Market Committee. The New York Fed president gets a permanent vote on the committee and serves as is its vice chair.
The Fed is facing increased pressure to add more diversity among its top leaders. Sen. Cory Booker, D-N.J., highlighted such concerns in a March 26 column on Bloomberg View, saying the Fed "needs a leader who will put the interests of working Americans first." The New York Fed has never been led by a woman or minority, he pointed out.
Williams has been the president and CEO of the San Francisco Fed since 2011, taking over for Janet Yellen when she headed to the Board of Governors. He joined the regional bank in 2002 and previously served as its executive vice president and director of research. Williams, 55, was also an economist at the Fed's Board of Governors and taught at Stanford University.
Shawn Sebastian, director of the Fed Up Campaign, said bringing more diverse perspectives to the central bank would help alleviate a key "blind spot" it faces in monetary policy decisions. Fed officials, he said, are largely convinced the U.S. economy is at full employment and are raising interest rates instead of focusing on how they can lessen minority unemployment rates.
"What happens when [Fed Chairman] Jerome Powell and John Williams underestimate maximum employment is that low-income people, disproportionately people of color, are sacrificed. ... We lose the opportunity to get jobs and higher wages," Sebastian said.
On monetary policy, Williams is seen as one of the more influential economic thinkers on the FOMC. He has, for example, advocated for the Fed to rethink its 2% inflation target and switch to a price-level target framework, where the Fed can compensate for inflation misses by making up for them in the future. He is mostly seen as slightly hawkish on monetary policy, saying in February that raising rates three or four times in 2018 "makes sense."
Williams, though, is seen as having far less experience on financial regulation. Sebastian, of Fed Up, said the scandal over fake account openings at the San Francisco-based Wells Fargo & Co. "happened right under his nose." FTN Financial Chief Economist Chris Low also said in a note to clients that Williams' relative lack of experience "could be a problem" given the New York Fed's increased role in spotting any possible weaknesses in the financial system.
But Diane Swonk, chief economist at Grant Thornton, said New York Fed directors may be looking to avoid picking someone with long ties to the financial industry. The Fed, she added, also "dealt a pretty heavy blow" to Wells Fargo over the scandal by imposing unprecedented restrictions on the company.
A Williams' pick would help provide more continuity at top Fed roles at a time when it has a historic number of vacancies at the Board of Governors, she said. Williams also has some "muscle memory" on the Fed's response to the financial crisis, she added.
Swonk agrees with the calls to increase diversity at the top of the Fed but noted Williams' possible move could also open up a spot for Mary Daly, the San Francisco Fed's research director, to be elevated to his spot. "He's also a very qualified choice, and we have to remember that," she said.
William Dudley, the current New York Fed president, announced last November he is retiring in the middle of 2018. The New York Fed's search committee confirmed March 16 they had "narrowed the list to a handful of final candidates."
The Federal Reserve Board, which gets final say on the top leaders of the 12 regional Fed banks, and the San Francisco Fed declined to comment on the reports. Jack Gutt, a New York Fed spokesman, said the board of directors will announce their selection once the process is finalized but declined to comment further.