Reuters/Ann Saphir
San Francisco Federal Reserve President John Williams poses for a photo at the Federal Reserve Bank of San Francisco.
- John Williams was named president of the New York Fed above the objections of critics and community organizations who wanted a woman or person of color to represent the powerful regional central bank.
- Several highly-qualified women were passed up for the job in an opaque search process with little public input.
"I think Williams is a disastrous appointment," David Blanchflower, a former central bank official at the Bank of England and currently a professor at Dartmouth College, told Business Insider.
On paper, it's hard to argue John Williams is not adequately qualified to lead the Federal Reserve Bank of New York.
Yet in reality, it's also difficult to defend the decision that he was the best-qualified available candidate for the highly-influential post - and the highly opaque process that led to his selection reveals deep-seated conflicts of interest in the US central bank's governance structure.
At issue is the quasi-private nature of the Fed's 12 regional district banks, which supposedly are working for a public purpose but which are, at their core, supposed to act as public institutions. Unlike Fed board governors, which are presidentially appointed, regional Fed presidents are picked by their own boards, which are composed of bankers, business executives and community leaders. This leads to conflicts that critics say reinforces the financial industry's already giant influence over its own regulators - a closeness that played a huge role in the complacency that preceded the 2008 financial crisis.
The New York Fed search was unusual for the public scrutiny it garnered, thanks in no small part to activists led by Fed Up and the Center for Popular Democracy. The two groups called on the regional bank, whose presidents have all been white men, to broaden its search and make the selection criteria more transparent.
Even prominent senators like Corey Booker and Kristen Gillibrand chimed in.
"The New York Fed has never had a woman or a person of color at its helm, and the Federal Reserve Bank only just last year added its first black regional bank president," Booker wrote in a Bloomberg View column. "If we're serious about creating an inclusive and sustainable economy, no one should be left on the sidelines."
Fed Up
Alas, that's not how things went down.
"The search for the next New York Fed president began with commitments to diversity and gestures toward public engagement and has ended with the appointment of Williams, a white, male, Fed insider who had never been mentioned before," said Fed Up Director Shawn Sebastian.
"The public had no chance to ask a single question about Williams's dismal record on maximum employment and regulation. The process for selecting the President of the New York Federal Reserve was plagued with conflicts of interest and was dominated by the financial industry."
In particular, one of the key participants in the search committee for the role had to step down because he was negotiating a job for himself on Wall Street.
This is a particular problem for the New York Fed. The powerful regional bank, whose president is also vice chairman of the interest-rate setting Federal Open Market Committee and has a permanent vote on monetary policy as well as a huge role in banking oversight, is one of the Fed system's most conflicted.
William Dudley, the current president, is a former Goldman Sachs banker. In fact, every single one of the New York Fed's presidents was a white male banker - working in the industry either before or after their post. Dudley himself was appointed to the job by a former Goldman Sachs director who was also on the New York Fed board.
Williams has never worked on Wall Street. He's a career Fed economist who rose through the ranks of the San Francisco Fed to become Janet Yellen's research director while she was president of that regional bank.
But there are two major problems with Williams' appointment beyond the lack of diversity and internal, unimaginative nature of the hire: Williams was inserted into the search process late in the game and over and above qualified women who had already been in the running; and Williams has been consistently wrong about how low the unemployment rate could go.
"I think Williams is a disastrous appointment," David Blanchflower, a former central bank official at the Bank of England and currently a professor at Dartmouth College, told Business Insider.
"He was rejected by Trump as vice chair of the board and his academic work suggests he doesn't believe there was a recession. The last thing we need is another clueless hawk who seems unable to read the data."