WASHINGTON: The looming retirement of the Federal Reserve’s (Fed) longest-serving policymaker has set off a debate within the US central bank over the rules governing term limits for regional Fed leaders, according to people familiar with the discussions.
Fed officials are parsing whether New York Fed president John Williams can serve until June 2028, when he will reach 10 years of service in his current role, or if internal rules dictate he should step down in June 2027, when he turns 65.
Fed watchers – and Williams himself –have interpreted the rules as allowing the New York Fed chief to serve for another year and a half.
A departure next year would give chairman Kevin Warsh an opportunity to influence the appointment of a new leader to the central bank’s most important outpost a year earlier.
Last month Williams said he expected to serve through June 2028.
A spokesperson for the Fed’s board of governors in Washington declined to comment on when Fed leaders believe Williams must depart.
Pat Wang, chair of the New York Fed’s board of directors – which is responsible for appointing the bank’s leader – also declined to comment via a spokesperson.
The New York Fed president fills a uniquely powerful regional role that comes with a permanent vote on the rate-setting Federal Open Market Committee.
Its occupant also serves as the central bank’s eyes and ears on Wall Street and plays a crucial role in its responses to financial crises.
It’s not clear whether Warsh or any officials on the Fed board would endorse a move to end Williams’ tenure sooner than he expects to depart, according to the people familiar with the matter.
Moving to end Williams’ term early could draw objections from other regional Fed leaders worried about encroachment in their operations from Washington.
The New York Fed’s board of directors has not yet announced a formal search for the next president, a process that typically takes many months.
Fed rules require presidents to retire at 65, but those appointed after age 55 are typically granted 10 years of service, if they remain in good standing with their boards of directors.
In 2017, the board of the New York Fed unanimously approved a waiver of the retirement rule allowing then-president William Dudley to serve past his 65th birthday in January 2018.
Dudley retired the following June.
The discussion around Williams’ departure date hinges on whether his earlier tenure as president of the San Francisco Fed from 2011 to 2018 counts toward his 10 years.
Williams has made clear he expected to serve a decade when he took the New York job in 2018.
“That’s my commitment to the board of directors here at the bank, and also the commitment I had with my family, moving to New York, and we’re going to be here for 10 years,” he said in an interview with Bloomberg News last month.
“When I started here in June of 2018, my intention was to serve my full term and continue doing that and that’s how I approach that.”
A spokesperson for the New York Fed declined to provide any additional comment. Derek Tang, an economist at Monetary Policy Analytics, recently nodded to the question of Williams’ departure in a note to clients laying out the expected exit dates for every Fed official.
For Williams, he listed both potential dates. “The fact that these issues are coming up in the first place is extraordinary,” Tang said.
According to Fed historian Peter Conti-Brown at the University of Pennsylvania, the statute that governs the central bank supports both readings.
But the board of governors in Washington, he added, holds the final authority and can enforce its interpretation through removal.
Still, Conti-Brown expects the board will avoid a clash and allow Williams to serve into 2028. Pushing him out would look overtly political at a time when regional banks are worried about tighter oversight from Washington.
“Otherwise, it will look like John Williams got fired just as reserve banks are wary of greater board consolidation of their prior autonomy,” Conti-Brown said.
After 15 years at the rate-setting table, Williams outpaces Jerome Powell by a year as the longest-serving Fed official.
Powell’s tenure as Fed chief ended in May but he remains a member of the board of governors.
For Williams, taking the helm in New York capped a steady rise through the central bank’s highest ranks.
He joined the staff in Washington just after receiving a doctorate in economics from Stanford University in 1994.
He jumped to the San Francisco Fed in 2002, was promoted to research director in 2009 and became its president in 2011 after his longtime mentor, Janet Yellen, moved to Washington to become vice-chair.
Williams switched to the New York Fed in 2018 in a move that handed then-chair Powell a key intellectual and monetary policy ally, and made Williams a cornerstone of the Fed’s leadership troika, alongside the chair and vice-chair.
Williams has also conducted groundbreaking research.
Along with the late Thomas Laubach, he developed what is widely considered the benchmark model for estimating the so-called neutral rate – the level at which interest rates neither spur nor restrain an economy.
His remarks on the state of the economy and policy are closely followed and occasionally move financial markets at a time when Warsh has curtailed his own public views on the economy and the likely path of interest rates.
That was the case on Sept 29, when Williams said one more interest-rate increase “late this year” may be appropriate. That speech prompted traders to ratchet back the probability they assigned to an October hike to about 50% from 70%, based on federal funds futures contracts.
Fed governors, including the chair and vice-chairs, are nominated by the US President and are subject to Senate confirmation. — Bloomberg
