Fed: Delays in Vice Chair, Other Board Governors

Published on January 30, 2018

There has been no small amount of analysis in recent days over possible hawkish tweaks to the wording of the Federal Open Market Committee’s January meeting statement, due to be released tomorrow afternoon.

We do not have an especially strong view one way or another on the statement wording, though we are not sure the FOMC will bother with hawkish “bridging” language to their mid-March meeting when, barring a reversal in the outlook, a rate hike is already far more likely than not and already priced in.

But in any case, we suspect incoming Chair Jerome Powell already has more pressing issues on his mind than the statement wording.

*** It is our understanding that Federal Reserve Bank of San Francisco President John Williams is no longer the leading candidate being considered by the White House as its nominee to the Vice Chair of the Federal Reserve Board. While the reasons remain unclear, it is believed that Williams’s initial interview with the White House search committee did not go well. And while a route may be found to bring him back for a second round, it seems likely that Williams may in effect be out of the running for Vice Chair. ***

*** At the same time, it is equally unclear whether the Williams exit from the White House shortlist for the Vice Chair necessarily ensures a nomination for the other lead candidate, Lawrence Lindsey, the former Fed governor and White House economic advisor. Lindsey, who had publicly aligned with the Trump Administration in lobbying for the tax cuts passed late last year, has considerable political support in the White House and among Republicans on Capitol Hill. But questions remain over his “fit” in a Powell-led FOMC. ***

*** The expectation at both the White House and the Fed Board had been that a Vice Chair nominee would be announced within a week or so of Powell’s Senate confirmation last Tuesday. Any new delays, as well as what we understand may be new complications in the confirmation of two other Board Governors could leave Powell presiding over his first FOMC meeting in March with but two other Board members and still unsure of what sort of FOMC will be coming together in a pivotal first year as Chair. ***

Delays in Filling Fed Board Seats

The Williams candidacy got a major initial boost in a recommendation made to Vice President Mike Pence by Stanford University professor John Taylor (SGH 1/11/18, “Fed: The Vice Chair”). Pence had been tasked by President Trump to take the lead in the search and vetting for the Board of Governors Vice Chair position.

Williams was favored inside the Fed as an ideal fit for incoming Chairman Powell. Williams has had a long career inside the Fed system and is a well-regarded macro-economist in addition to serving as San Francisco Fed president. He was seen as providing the sort of academic gravitas in serving as a number two to the Chairman, a non-economist, and in working with the Board staff, as well as potentially taking the lead on issues like a review of the Fed’s policy framework.

The White House had intended to announce its nominee for the Vice Chair position shortly after Powell was confirmed by the Senate, which came in a 84 to 13 vote a week ago today. But the Williams setback, and apparent questions that remain over Lindsey, may mean the search is going to be delayed and broadened to include new candidates.

Among those often mentioned in the press, neither Richard Clarida, a professor of economics at Columbia University and a managing director at Pimco, or Mohamed el-Erian, the chief economic adviser at Allianz and a former Pimco executive, are likely to still be on the White House short list.

Additional candidates are said to be under consideration, including James Bullard and Loretta Mester, the district presidents of the Federal Reserve Banks of St. Louis and Cleveland respectively. We understand both were being considered as candidates to fill vacant Governor positions, but their names have been added to the mix in the extended search for a Vice Chair.

Unless there is a decision on the Vice Chair nomination in the next week or two, it may prove to be difficult to get the new Vice Chair confirmed before the FOMC’s March 20-21 meeting, which will be Powell’s first as Chair.

And the problems in filling the vacancies on the Board may see additional delays and complications. There is speculation, for instance, that the nomination of Marvin Goodfriend may be in trouble.

Goodfriend, a highly respected professor of monetary economics and a former research head at the Federal Reserve Bank of Richmond, stumbled badly during his recent Senate Banking Committee confirmation hearings under some unusually aggressive questioning by Democrats and Republicans alike.

There are also apparently rumblings building among some lobbyist groups against the Goodfriend confirmation because of his academic paper on the merits of using negative interest rates if the policy rate should again be up against the Zero Lower Bound.

There have also been considerable delays, for unknown reasons, in the White House nomination of a community banker to the Board. We had understood that as early as last summer, Old National Bank Chairman and CEO Robert “Bob” Jones was offered, and that he accepted, consideration as the Administration’s community banker nominee (see SGH 6/28/17, “Fed: Board Transitions”).

But another name was floated in late November last year by the White House for the community banker slot, that of Kansas State Bank Commissioner Michelle Bowman. Prior to her appointment to the Banking Commission, Bowman was a Vice President for five years at the Farmers and Drovers Bank of Kansas. Bowman also spent several years in Washington, serving in the Homeland Security Department under President George W Bush and on the legislative staff of former Kansas Senator Bob Dole.

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