The Federal Reserve Bank of New York on Tuesday named John C. Williams as its next president, turning to a Federal Reserve insider with monetary-policy expertise while disappointing some lawmakers and community leaders who had pushed for a woman or minority candidate to fill the role.
Williams, a 55-year-old white man who currently heads the Federal Reserve Bank of San Francisco, will take over June 18, according to a statement. The New York Fed's current chief, Bill Dudley, will retire on June 17.
According to people familiar with the matter, it was Williams' proficiency on monetary policy -- the closely-scrutinized art of setting benchmark U.S. borrowing costs to keep unemployment low and while still preventing inflation -- that got him the nod. Such expertise was seen as crucial since it's the biggest hole on the resume of current Fed Chairman Jerome Powell -- a former private-equity executive, investment banker and corporate lawyer appointed this year by President Donald Trump.
Williams's background as a highly respected U.S. economist with Federal Reserve experience outweighed his deficiencies as a candidate, the people said; he's perceived as having a lack of experience in crucial New York Fed functions, including daily money-market operations with Wall Street firms, oversight of global payment systems and coordination with foreign regulators on international banking issues.
He also has been criticized for failures of oversight at the scandal-plagued, San-Francisco-based bank Wells Fargo & Co. (WFC - Get Report) . The complaints carried relevance because the New York Fed supervises the giant U.S. banks JPMorgan Chase & Co. (JPM - Get Report) , Citigroup Inc. (C - Get Report) , Goldman Sachs Group Inc. (GS - Get Report) and Morgan Stanley (MS - Get Report) , all of which took government-funded bailouts during the 2008 financial crisis.
But the expertise on monetary-policy could make Williams a crucial ally of Powell's as the Fed seeks to reverse the drastic steps taken by the Fed to stimulate the economy after the crisis. Those included providing more than $1 trillion in secret emergency loans to banks, cutting interest rates to near zero and quadrupling the size of the Fed's balance sheet to about $4.5 trillion in a bid to flood financial markets with freshly printed money.
According to the statement, Williams has produced "seminal research" on monetary-policy issues, including the decision to set interest rates near zero in the wake of the crisis.
"John is a dedicated public servant, a distinguished thought leader in monetary policymaking and a proven executive and public communicator," Powell said in the statement. "I have valued his insight and wise counsel during my years at the Federal Reserve and look forward to continuing to work with him in the years ahead."
The announcement culminates a fraught search that began in November. Early on, the search committee had publicized its efforts to find a "diverse" candidate, raising hopes among many observers that a woman or minority candidate might be selected. More than 30 qualified candidates were interviewed, half of them women or minorities, according to the New York Fed.
The controversy was amplified by the fact that the New York Fed president, while playing an outsize role in U.S. financial and regulatory policies, is neither elected nor appointed by an elected official. Whereas Fed chairs are nominated by the president of the U.S., heads of regional Fed branches are nominated by committees of local board members - some of them nominated by banks - and approved by the Federal Reserve Board in Washington.
In a statement, the New York Fed's presidential search committee touted Williams's support of "diverse communities" in San Francisco and cited his commitment to policies that maximize employment. The committee also noted his efforts to push for diversity on the San Francisco Fed's senior leadership team.
Still, the announcement Tuesday drew an immediate rebuke from U.S. Senator Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, which oversees legislative efforts involving the Federal Reserve system.
"I am disappointed by the search committee's selection of another Fed insider," Brown said in a statement. "Federal Reserve system officials cannot continue to say that diversity is important without showing that they mean it."
Sen. Elizabeth Warren, Democrat of Massachusetts, also criticized the selection process.
"The Fed's Board of Governors and the New York Fed should go out of their way to solicit and consider public input when selecting a new president who will have so much influence over interest rates and Wall Street supervision - instead, they turned the process over to a handful of private individuals and ignored calls to choose one of many qualified alternatives who might have brought a new perspective," Warren said in a statement. "If the Fed wants to regain some of its credibility around this decision, it should have Mr. Williams and the co-chairs of the New York Fed search committee promptly testify before Congress."
Among the Fed's 12 regional reserve banks, the New York Fed is by far the biggest and most powerful. The New York branch held $2.5 trillion, or 56%, of total Federal Reserve System assets as of year-end 2017. The San Francisco Fed, by comparison, held $568.7 billion.
The New York Fed president has a permanent seat on the national monetary-policy committee, while the other regional heads have to share rotating terms. And the New York Fed chief is considered a key member of the committee because he - the role has always been held by a white man - supposedly is the closest observer of what's happening on Wall Street and in financial markets.
In fact, the New York Fed president is considered by insiders as part of a "troika" of U.S. monetary-policy leadership along with the Fed chair and vice-chair. The three people often coordinate privately on plans and strategy for monetary policy prior to bringing matters before the full 12-member committee for a discussion and vote, according to people with knowledge of the matter. The Fed currently has no vice chair because the White House has not nominated anyone for the post; that vacancy just adds to the importance of the New York Fed choice.
The other top candidates recommended by the New York Fed search committee were Mary John Miller, a former Treasury Department undersecretary at executive for the money-management firm T. Rowe Price, and Ray McGuire, a black executive who serves as chief of investment banking at Citigroup, according to a person with knowledge of the matter.
But under the process for selecting the New York Fed's head, the Federal Reserve Board must approve any choice. That essentially gave Powell veto power. Williams had been a candidate for Fed vice chair earlier this year - backed by Powell -- but did not do well in his White House interview, people familiar with the matter said. So installing him at the New York Fed role represented a fallback option to get him onto the troika.
Numerous critics had slammed the process since Williams emerged last month as the likely winner of the job.
Better Markets, a non-profit organization that advocates for the public interest on Wall Street, issued a press release last week saying that a potential promotion by Williams to lead the Federal Reserve Bank of New York would reward failure - because of lax supervision at Wells Fargo.
Wells Fargo, which is supervised by the San Francisco Fed, created such a toxic culture of aggressive sales practices and customer abuses during Williams's watch that the Federal Reserve Board in Washington had to take the unusual and draconian step earlier this year of temporarily banning the San Francisco-based bank from further asset growth.
A separate coalition of community organizations had issued a statement blasting the reported selection and urging the New York Fed's search committee to start over. U.S. Senator Kirsten Gillibrand, a New York Democrat, was quoted as saying that the "New York Fed has never been led by a woman or a person of color, and that needs to change."
Williams won final approval from eligible New York Fed board members on Monday, and the Fed board in Washington gave the final nod earlier Tuesday, according to the New York Fed's statement.
A glance at Williams's resume reveals his depth of knowledge on monetary policy.
Since getting a doctoral degree from Stanford University in 1994, he has spent his entire career in the Federal Reserve System, doing research on the economy and monetary policy. He's authored or co-authored 101 research articles or other publications on the topic, according to his curriculum vitae.
He's also served on the Federal Reserve's monetary-policy committee with former Fed Chairs Ben Bernanke and Janet Yellen, both economics experts in their own right; at meetings, Williams chimed in confidently on the arcana of employment economics, the relationship between business confidence and investment and the impact of interest rates on foreign exchange, according to transcripts.