NEW YORK (Reuters) - The Federal Reserve Bank of New York confirmed on Monday that William Dudley, among the most influential monetary policymakers throughout the financial crisis and its aftermath, expects to retire by mid-2018, raising another question over leadership at the U.S. central bank less than a week after President Donald Trump chose a new Fed chief.
Dudley, 64, one of the central bank’s strongest advocates of unprecedented monetary stimulus in the last decade and a steady hand on its delicate market operations, will step down before his term as president officially ends in January 2019.
The New York Fed’s board said its search committee had already begun its work, and aims to name a successor by the middle of next year.
The announcement, which Reuters reported on Sunday, accelerates a revolution in Fed leadership that could upend its cautious approach to raising interest rates and to shedding some of the $3.5-trillion in bonds purchased to stimulate the economy in the face of the 2007-2009 crisis and recession.
Trump, a Republican who seeks to pare down the central bank’s tough financial regulations while keeping rates moderately low, on Thursday named Fed Governor Jerome Powell as successor to Janet Yellen when her term ends in February. This decision broke a precedent of Fed chairs serving at least two terms.
The White House has an unusually large window to reshape the Fed given three more seats are vacant on its powerful seven-seat Board of Governors, and four if Yellen retires next year. The Fed’s well respected vice chair, Stanley Fischer, and its point-person on bank supervision, Daniel Tarullo, stepped down earlier this year as the overhaul gained steam in the wake of the 2016 U.S. election.
“It clears the deck for a Powell-led Fed,” said Peter Hooper, chief economist at Deutsche Bank Securities. The New York Fed president’s “bully pulpit is an important one” on both monetary and regulatory policy, he said, adding Trump’s selection of Powell and not a more reform-minded nominee for Fed chair may have allowed Dudley to retire early.
Trump pick Randal Quarles assumed a board position last month as the Fed’s vice chair for financial supervision.
The 12 regional Fed presidents, chosen by their regional directors and approved by the Fed board, vote on policy on a rotating basis.
The New York Fed president is unique in that the position has a permanent vote on the policy-setting Federal Open Market Committee (FOMC), serves as its vice chair, and acts as its eyes and ears on Wall Street and often as its liaison to international counterparts.
A former Goldman Sachs chief economist, he joined the New York Fed as its markets head in 2007 and took its helm in the depths of the crisis in early 2009.
He has since steered a mostly dovish path as a close ally of Yellen and her predecessor Ben Bernanke, often flagging pending policy changes that influenced world financial markets. Recently, however, he has advocated a more aggressive tightening plan even while inflation has drifted lower below target.
Dudley said in a speech that the stable U.S. economy and internal Fed consensus on policy made it an ideal time for a leadership transition.
Aside from Yellen and Dudley, only three other current Fed rate-setters were in the room nearly a decade ago when emergency measures were taken to head off the crisis. “Dudley was an important source of institutional memory, stability and experience, and that will be tough to replace,” said Eric Winograd, U.S. economist at AllianceBernstein.
As financial watchdog, the New York Fed president has repeatedly criticized poor culture and behavior that led for example to bankers manipulating the Libor reference rate. Yet Dudley himself has faced criticism from Congress and others, including for the New York Fed’s failure to stem JPMorgan’s risky so-called London Whale trades in 2012.
Dudley has overseen the mass asset purchases and, last month, his Fed bank began shrinking the balance sheet. Indeed financial conditions - including credit spreads, the dollar, stocks and bonds - have played an outsized role in his recommendations even while he has urged policies to drive U.S. unemployment as low as practicable.
The central bank’s tricky task of edging away from bond markets suggests that Simon Potter, the current head of market operations at the New York Fed; Lorie Logan, the bank’s head of analysis and monitoring of market operations; and Brian Sack, who held the role before Potter and is now at D.E. Shaw, could be considered candidates.
The search committee could also look to current and former Fed governors and presidents, according to former Fed officials and those familiar with past search efforts. Fed Governor Lael Brainard and former governor Kevin Warsh, whom Trump considered for the Fed chair job, could also be in the mix, they said.
The nationwide search will tap “academia, community and economic development organizations, labor, small business and industry” for advice, the board said.
Reporting by Jonathan Spicer; Editing by Chizu Nomiyama