Dudley to Quit. Potentially 5 vacancies to fill on the FOMC. No one knows what the Fed will look like.
The next slot on the Fed opens up: New York Fed President William Dudley will announce his retirement as soon as next week, “several people familiar with his plans” told CNBC. He may stay on till his replacement is found and approved, likely to happen in the spring or summer next year. The New York Fed has already formed a search committee, the people said.[Update, Nov 6: The New York Fed just confirmed that he’d retire “in mid-2018 to ensure that a successor is in place.”]
This is unexpected; his 10-year term will expire in 2019. He could have stayed on for the sake of stability. He is one of the most influential figures on the Fed’s policy-setting Federal Open Markets Committee (FOMC) and is considered a “dove.”
The 12-member FOMC is composed of:
- The seven members of the Board of Governors which is in the process of being nearly completely turned over
- The president of the New York Fed who is retiring.
- And on a one-year rotating basis four presidents of the remaining 11 regional Federal Reserve Banks.
The president of the New York Fed is special among the heads of the regional Fed banks: That person always serves as vice chair of the FOMC and, unlike the rest of them, votes at every meeting.
So next year the FOMC will be a different animal.
But President Trump doesn’t get to appoint Dudley’s replacement. This decision will be made by the New York Fed’s Board of Directors and will have to be approved by the Fed Board of Governors, which Trump will have an opportunity to load with his appointees.
Of the seven slots on the Board, only four are currently filled. Three are vacant. And a fourth slot might become vacant if Janet Yellen decides to leave.
She serves a 14-year term on the Board. She also serves a four-year term as Chair that will expire in February. Last week, Trump appointed her replacement as Chair, Jerome Powell, who already serves on the Board. For him it was a promotion of sorts. But Yellen may resign from the Board altogether in February when her term as Chair expires. This would create the fourth vacancy on the Board.
Plus Dudley’s vacant slot on the FOMC.
In early October Trump nominated and the Senate approved Randal Quarles as a member of the Board. During his confirmation hearing, Quarles said it was time to roll back some of the regulations that were imposed on banks after they’d threatened to take down the global financial system. He will become the chief bank regulator at the Fed, filling the slot that became vacant in April when Daniel Tarullo resigned unexpectedly.
Quarles was a partner at private equity firm The Carlyle Group, served as undersecretary of the Treasury under President George W. Bush, and is the founder of The Cynosure Group, a private investment firm.
The next Fed Chair, Jerome Powell, is a also an alum of The Carlyle Group and a host of other financial firms, interspersed with gigs at the US Treasury, and now at the Fed.
WHIRRRR makes the revolving door.
Dudley, who worked at Goldman Sachs from 1986 to 2007, was hired to head New York Fed’s markets group, which is in charge of buying and selling the Fed’s assets, and thus was heavily involved in the Fed’s bank bailouts – including its refusal not to bail out Lehman Brothers – and the QE programs during and after the Financial Crisis. He was promoted to president of the New York Fed in 2009. Under his leadership, the New York Fed acquired the assets that now constitute the Fed’s $4.45 trillion balance sheet. And under his leadership, the New York Fed has actually begun the QE unwind.
According to CNBC:
Dudley had told several colleagues he was planning to leave in 2018, and his departure is said not to be related to the decision last week by President Donald Trump to name Fed Governor Jerome Powell as the next Fed Chairman. In doing so, Trump declined to renominate current Chair Janet Yellen, with whom Dudley has worked closely over the past several years.
Of the eight permanent votes on the FOMC – the seven members of the Board of Governors and the president of the New York Fed – only three are currently known if Yellen decides to leave: Jerome Powell, Lael Brainard, and Quarles. The other five are unknowns.
This leaves the decision-making power at the Fed next year in the hands of a group of people that is dominated by unknowns. Monetary policy is undergoing a critical change in direction, with rates being hiked and QE being unwound. While there doesn’t seem to be a lot of airspace between Yellen and Powell at the moment – though that too could change without notice – the rest of this new Fed is mostly unknown and could be off the charts.
The Fed announced its QE unwind in September, and now it’s following through. But what’s happening with its mortgage-backed securities? Read… The Fed Actually Begins its QE Unwind