San Francisco Fed's John Williams is front runner to serve as New York Fed president

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San Francisco Fed President John Williams is the leading candidate to become the next president of the Federal Reserve Bank of New York, one of the most influential positions within the U.S. central bank, according to people familiar with the matter.  Mr. Williams has been recommended by the New York Fed's board for the position. If approved by the Washington-based Fed board of governors, Mr. Williams would succeed William Dudley, who plans to step down this summer.  The president of the New York Fed, one of 12 regional reserve banks, has a permanent vote on the central bank's rate-setting Federal Open Market Committee and serves as its vice chair. The bank is a chief regulator of the some of the nation's largest banks and serves as the Fed's window onto Wall Street.  Mr. Williams succeeded Janet Yellen as the San Francisco Fed leader in 2011, after Ms. Yellen was tapped by President Barack Obama to serve as the Fed's vice chairwoman. Mr. Williams previously served as the San Francisco Fed's research director, reporting to Ms. Yellen.  Mr. Williams, 55 years old, joined the San Francisco Fed in 2002 and previously served as a senior economist for the Fed board in Washington. He joined the central bank in 1994 and has a Ph.D. in economics from Stanford University.  Mr. Williams has advocated in favor of the Fed's current path of gradually raising interest rates, voting with his colleagues last week to lift their benchmark short-term rate by a quarter percentage point.  "Based on where I see [the economy] going, it makes sense to think about three or four rate increases in 2018," Mr. Williams said to reporters in Los Angeles in late February.  No final decisions have been announced, and the situation could always change, these people said.  The New York Fed president figures to serve as a top lieutenant to Fed Chairman Jerome Powell, who started his term in February.  Another top post, the Fed board's vice chairman, is vacant. The Wall Street Journal previously reported that President Donald Trump is likely to nominate Columbia University economist Richard Clarida for Fed vice chairman. Mr. Williams was among several candidates who interviewed for that job with the White House.  The members of the Fed board of governors, including the chair and vice chair, are nominated by the U.S. president and subject to Senate confirmation. The 12 Fed reserve bank presidents aren't. Instead, the members of each reserve bank's board of directors who don't represent private banks regulated by the Fed select the leader of the bank, subject to approval by the Fed's board in Washington.  The New York Fed began its search for a new president last fall and by mid-March had winnowed its pool down to three finalists, according to people familiar with the matter. The two other shortlisted candidates are Raymond McGuire, the longtime head of corporate and investment banking at Citigroup Inc., and Mary Miller, a former top Treasury Department official, these people said.  The New York Fed, and the central bank system as a whole, has come under pressure from lawmakers and outside groups to recruit more diverse candidates to fill its senior ranks, which are predominantly white and male.  Last year, the Atlanta Fed became the first Fed reserve bank to name an African American as its president when it selected Raphael Bostic. Mr. McGuire is also African-American.  Meanwhile, just two of the 12 reserve banks have female presidents: the Cleveland Fed's Loretta Mester and the Kansas City Fed's Esther George.  The next president of the New York Fed will implement important decisions over how the central bank should manage interest-rate policy with a portfolio of bonds and other assets that is significantly larger than before the financial crisis. The Fed last year began shrinking its bond holdings.  Mr. Powell has served as the Fed board's point person overseeing the selection of new presidents at reserve banks for the past several years. He has been more involved in the New York Fed's presidential search than other recent reserve bank executive searches, according to people familiar with the matter.  Mr. Powell, who isn't an economist, has been especially keen on having someone in the job with monetary-policy experience, these people said, an emphasis that boosted Mr. Williams's candidacy.  Mr. McGuire, 61 years old, and Ms. Miller, 62, have extensive private-sector backgrounds in finance but no experience conducting monetary policy.  He has worked in investment banking since 1984 and became Citi's sole head of global banking in 2009 after serving as co-head for the prior four years. She spent 26 years at T. Rowe Price Group in Baltimore, most recently running the asset-management company's fixed-income division. Ms. Miller then served at the Treasury Department from 2010 to 2014, most recently as undersecretary for domestic finance.  Mr. Williams, in contrast, has an extensive record of economic research on monetary-policy topics and has driven debate on some issues.  For example, he had done leading work on identifying the neutral rate of interest -- the inflation-adjusted rate that neither spurs nor curbs growth. Understanding how to glean this unobservable rate is important in setting Fed interest-rate policy. Mr. Williams has argued, and many other officials have come to agree, that the neutral rate fell very low during the financial crisis and recession and hasn't recovered much since.  In recent months, Mr. Williams has revived calls for the Fed to debate possible changes to its policy framework of targeting 2% inflation. He has advocated for considering a price-level target, in which the Fed would make up for periods of below-target inflation by allowing inflation to run higher later during an expansion to make up for the earlier shortfall.  The San Francisco Fed also has taken the lead in recent months in taking a more aggressive tack in recommending structural changes at Wells Fargo & Co., which has its headquarters in the San Francisco Fed's district, after the eruption of a sales practices scandal that resulted in potentially 3.5 million accounts opened without customers' knowledge. The Fed announced an enforcement action in February that limits the size of the third-largest U.S. bank by assets, potentially crimping revenue and profit growth.  In an interview last year, Mr. Williams said the phony-account scandal underscored "the importance of the soft side of supervision, which is really about management, governance and culture."  Mr. Dudley, whose term expires early next year, announced in November that he planned to retire this summer. The New York Fed's board directors who aren't from the banking industry were tasked with selecting the new president, and the search committee was led by two of those directors, Sara Horowitz and Glenn Hutchins.  The New York Fed hired two executive search firms to help find Mr. Dudley's successor. One of those, Spencer Stuart, has been involved in many Fed bank leadership searches, including the one that resulted in Mr. Bostic's selection in March 2017. The other, Bridge Partners, specializes in identifying candidates who are women and minorities.  On March 16, the search committee said it had narrowed the list "to a handful of final candidates, who we are pleased to say are eminently qualified."  Ms. Miller and Mr. McGuire are both registered Democrats. Mr. Williams is registered with no party affiliation.

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