Home Economics The choice of a boss for the New York Fed ends in...

The choice of a boss for the New York Fed ends in a familiar way

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THE president of the Federal Reserve Bank of New York is perhaps the second most important person in America’s financial hierarchy, behind only the chairman of the Federal Reserve. Unlike the presidents of the other regional Reserve Banks, he sits permanently on the committee in Washington, DC that sets interest rates. The New York Fed supervises Wall Street and, during financial crises, often gathers bankers to hash out a fix or to impose one on them. On April 3rd it was announced that John Williams would be next in line to take charge of the institution, replacing William Dudley.

Mr Williams has led the San Francisco Fed since 2011, when his predecessor in that job, Janet Yellen, moved to Washington. He is best known for his academic contributions to monetary policy. In particular, his estimates of the “neutral rate” of interest, at which money is neither tight nor loose, are regularly cited. In recent years he has appeared moderately hawkish, claiming that the economy was nearing full employment as early as May 2015, when the unemployment rate was 5.5% (it is 4.1% today).

Not everyone is happy about the choice. Mr Williams, like each of his predecessors, is a white man. This annoys campaigners who want more diversity at the Fed. Additionally, the process by which presidents are chosen is galling to many.

The Federal Reserve system, with its component regional banks, was created in 1913 with the aim of spreading power around the country. The 12 Reserve Banks are capitalised by the private banks they regulate. Those banks pick six of the nine directors at each Reserve Bank—three to represent their own interests and three to represent the public. The final three are appointed by the Fed board in Washington, DC.

Since 2010 the three bank representatives have been unable to influence the choice of president. Yet some think the process warrants democratic oversight. In March, after reports that Mr Williams would be appointed, Elizabeth Warren, a left-wing Democratic senator from Massachusetts, said that he should have to testify before the Senate. She noted that at the San Francisco Fed, he had been responsible for regulating Wells Fargo, a bank which has been embroiled in a mis-selling scandal. Defenders of the current system say that politicising the role would lead to worse appointments. It is up to Mr Williams to demonstrate that technocracy works.



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