How the New York Fed, Prizing Diversity, Elevated an Insider as Its Next President – Wall Street Journal

The New York Fed’s search for a new president began with an emphasis on attracting a diverse candidate pool. It ended focused on building out the leadership team for a new Federal Reserve chairman who isn’t an economist.

The decision, announced Tuesday, will elevate a consummate central-bank insider, San Francisco Fed President

John Williams,

after officials concluded he would best complement Fed Chairman

Jerome Powell

during a challenging period for monetary policy.

Mr. Williams, an economist, will fill the second leg of the traditional Fed leadership troika that also includes the chairman and the vice chairman of the board, a position now empty.

Mr. Williams’s research has shaped the central bank’s monetary policy when interest rates and inflation are low, as they have been for most of the past decade.

“There is no one I can think of who has a deeper background and who has made more contributions to monetary policy at a research, academic level. That’s combined with long experience and a very strong record of contributions to real decision-making through a complicated period,” said former Fed Chairwoman

Janet Yellen.

Mr. Williams served as her research director when she led the San Francisco Fed.

A subset of the New York Fed’s board of directors selects the president, subject to approval by the Fed’s Washington-based board of governors, giving them influence in the process.

The New York search officials consulted throughout the process with Mr. Powell, who at the start was a governor and the board’s point person on managing its relationships with the 12 reserve banks. He became Fed chairman in February.

Mr. Powell, a lawyer whose background is in finance, is especially keen on having top lieutenants with extensive monetary-policy experience, people familiar with the matter said. The search committee ultimately shared this desire.

The search process began with around 100 candidates who on paper met the qualifications of the job, according to people familiar with the process. Officials invited 13 candidates to interview, of which two declined to proceed.

Some minority candidates contacted by the search committee weren’t interested in being considered. Among them, former Fed Vice Chairman

Roger Ferguson,

an African-American, was widely viewed by insiders as the early favorite. Mr. Ferguson, chief executive of TIAA, declined to comment. Another was

Peter Blair Henry,

a black economist who recently completed eight years as dean of New York University’s Stern School of Business.

The search committee interviewed several economists with Fed experience. They included

Karen Dynan,

a former U.S. Treasury official and now a Harvard University professor, and

Brian Sack,

who once ran the New York Fed’s markets desk.

Ms. Dynan said Mr. Williams “will be great in the job. He’s a skilled macroeconomist and has a lot of experience in Fed communication.” Mr. Sack declined to comment.

Search committee officials also had been watching to see whom the White House would pick as Mr. Powell’s vice chairman. Mr. Williams interviewed for that job. By February, he had fallen out of the running for it, drawing new attention from the New York Fed search committee.


Donald Trump

is likely to nominate Columbia University economist

Richard Clarida

to become Fed vice chairman.

Along with fluency in economics and finance, officials placed significant attention on finding someone with strong communication skills and experience managing a sprawling organization.

They had narrowed the field down by March to Mr. Williams and two candidates with more finance experience:

Raymond McGuire,

a longtime banker at Citigroup Inc. who is African-American, and

Mary Miller,

a bond-market veteran and former Treasury Department official.

While Mr. Williams hasn’t worked in financial markets, this didn’t hurt his candidacy. The opposite was true: Some officials were wary of a political backlash if they named a banker to the top job of the New York Fed, which supervises some of the country’s biggest financial firms.

While many recent New York Fed leaders have had extensive markets experience, that was often the case when Fed chairs were economists.

John Taylor,

a Stanford University economist who has been critical of Fed policy in recent years, said Mr. Williams, his former student, “is an excellent pick.”

Mary Daly,

the San Francisco Fed’s research director, called Mr. Williams “a great leader” and said he “has a willingness to ask everyone around him who may not agree with him, ‘Hey, what do you think about my perspective on this?’”

Search officials took note of Mr. Williams’s commitment to diversity at the San Francisco Fed and the bank’s community development efforts. During his tenure as the bank’s president, the share of senior executives who are minorities increased to 46% in 2016 from 15% in 2012. The share of female senior executives has held steady at 31% over that period.

The choice fueled disapproval from Fed critics upset the search committee’s initial focus on attracting a diverse candidate pool ultimately didn’t yield a woman or member of a minority. Of the Fed’s 12 reserve bank presidents, 10 are white and 10 are male.

Those frustrations amplified objections over a search process that happens out of public view. The Fed chairman and other governors are nominated by the U.S. president and subject to Senate confirmation. In contrast, the reserve bank presidents are selected by the members of each reserve bank’s board of directors who don’t represent private banks regulated by the Fed, subject to the Fed governors’ approval.

“Such an opaque process harms the Fed’s legitimacy and undermines its credibility and effectiveness in serving the public,”

Andrew Levin,

a former Fed economist, said in a letter to Mr. Williams last week detailing his objections with the selection process.

Five New York Fed board members voted unanimously Monday to formally recommend Mr. Williams for the job, and the Washington-based board approved the selection Tuesday. He will succeed retiring New York Fed President

William Dudley

on June 18.

Write to Nick Timiraos at

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