The Federal Reserve Bank of New York’s search for a new president was a flawed process that should go back to the drawing board
It is now widely recognized that the president of the Federal Reserve Bank of New York is a uniquely powerful economic policymaking position. More crucially, it’s likely the most important such position that is not chosen by President Trump. Given the poor choices Trump has already made in choosing the leadership of the Fed, it is more important than ever to make a great choice for the NY Fed presidency.
The process so far has not been encouraging. Several on a list of highly qualified and diverse candidates were not contacted by the NY Fed. Worse, the leading candidate in today’s news reports wasn’t even being mentioned a week ago. This is not how a transparent and publicly accountable process should work, and it’s why the Fed needs fundamental reform.
This leading candidate is John Williams, the current president of the San Francisco Fed. Hiring the current leader of another regional Fed bank hardly constitutes out-of-the-box thinking for the NY Fed. Further, while Williams has done valuable economic research, his tenure as a policymaker at the Fed is frankly disappointing. He has consistently underestimated how much lower the unemployment rate could sustainably go. In 2012, he even thought that 6.5 percent might be the lower limit on the unemployment rate. Since then, he has modified his estimates, but he has seemingly not been chastened about making firm before-the-fact predictions about how low unemployment could go before sparking accelerating inflation.
The Federal Open Market Committee (FOMC) has lost some of its leading proponents for testing the lower limits of unemployment, and has gained some members who have been deeply wrong in arguing that unemployment should not be allowed to fall as far and fast as it has in recent years. Shifting John Williams from the San Francisco Fed to the NY Fed does nothing to push back on this drift of the FOMC away from valuing genuine full employment.
Finally, the San Francisco Fed under Williams’ leadership appointed the head of Wells Fargo to its advisory board years after reports surfaced of the bank’s illegal practice of creating accounts without depositors’ consent. Besides being deadly serious about promoting genuine full employment, we need a Fed helmed by people deadly serious about standing up to the financial industry and providing meaningful oversight and regulation.
The NY Fed should go back to the drawing board and draw from the deep, diverse, and highly qualified list of candidates provided to it by the Fed Up coalition (as well as surveying the views of other public interest groups). This is too important a decision to make on institutional autopilot.