SAN FRANCISCO/NEW YORK (Reuters) - As New York Federal Reserve chief, John Williams will bring intellectual heft to the central bank as a permanent voting member of the rate-setting committee, although he will need to prove himself both as regulator of and chief communicator with investment banks like Goldman Sachs GS.N and JPMorgan JPM.N.
A top-notch economist who has done ground-breaking research on monetary policy as president of the San Francisco Fed, Williams will also have his work cut out in communicating with Wall Street as effectively as incumbent William Dudley has done.
It was Dudley who in February 2017 spelled out a “compelling” case for a rise in interest rates ahead of a rate-setting meeting and dragged market pricing into line with the Fed’s path on interest rates.
Williams will take over from Dudley when he retires in June.
Williams, who has spent 24 years working in the Federal Reserve system, will be responsible for managing the Fed’s financial market operations including more than $4 trillion in bonds it bought during the financial crisis and which it is now systematically trimming, hoping not to spook markets.
One focus of Williams’ academic research has been showing how low interest rates are here to stay, a key issue for the Federal Reserve and other central banks as they seek to hike policy rates from the zero lower bound.
His lack of links to Wall Street could prove to be an advantage. Under Dudley, formerly a managing director at Goldman and the bank’s chief economist, the New York Fed was criticized for its ties to investment banks it was charged with regulating.
It’s a plus to be “without deep ties” to Wall Street, said University of Oregon professor Tim Duy, adding that Williams is smart enough to “know his weak points” and tap the bank’s own staff for any expertise he lacks.
WELLS FARGO AND LACK OF DIVERSITY
While Williams may not conform to some of the stereotypes of a Federal Reserve president and academic economist - he is a “Trekkie,” plays first-person-shooter computer games, and sometimes wears red sneakers - he is still a middle-aged white man.
The search committee at the New York Fed had included a search for minority candidates in its mandate. Just two of the 12 regional Fed presidents are non-white, and two are women, while there is just one female Fed governor.
The post is not open to congressional review, although Williams has also faced criticism over San Francisco-based Wells Fargo WFC.N, which opened millions of fraudulent customer accounts under his watch.
While it is the Federal Reserve Board that makes calls on large bank supervision rather than individual regional Fed bank presidents, critics say the fact that he will now be regulating some of world’s most powerful financial institutions is a worry.
“Mr. Williams’ track record raises several questions, including about his fitness to supervise Wall Street banks given the San Francisco Fed’s inadequate supervision of Wells Fargo during its many consumer scandals,” Senator Elizabeth Warren said last week.
NOT A NEOPHYTE
Although Williams has spent most of his career in the Fed system, he has had other work, with short stints on the Council of Economic Advisers, a semester or two teaching at Stanford and four post-college years managing Berkeley’s best-known pizza joint, Blondie’s.
Despite the lack of experience dealing with Wall Street, Williams won’t be starting from scratch, says John Taylor, a Stanford professor who wrote a paper with Williams on a problematic jump in financial market spreads in early 2008.
“He was one of the first people to notice problems in the balance sheets of financial institutions, way back before the financial crisis really took over,” Taylor said in an interview.
Reporting by Ann Saphir and Jonathan Spicer; Editing by David Chance and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.