Federal Reserve Bank of New York President William Dudley plans to retire in the middle of next year, signaling the departure of an influential, crisis-tested policy maker that will widen the leadership overhaul at the U.S. central bank.
The New York Fed said in a statement Monday that his decision will “ensure that a successor is in place well before the end of his term,” in January 2019.
President Donald Trump announced on Nov. 2 that Fed Governor Jerome Powell will be nominated to replace Chair Janet Yellen when her term expires in February, and Vice Chairman Stanley Fischer retired in mid-October. That leaves Trump with three open slots on the seven-seat Board in Washington, plus a fourth if Yellen decides to resign her seat as governor, as is widely expected.
With all the opportunities Trump will have to put his stamp on the nation’s central bank, personnel changes at the institution bring political and economic risks. Under current management, the Fed has helped create conditions for a stock market rally and the economy shows few signs of weakening -- so mistakes by new policy makers could get pinned on Trump.
“We are in the midst of a real change in the people who are going to be making policy decisions. The New York Fed president is probably the third-most important role at the Fed, behind the chair and the vice chair,” said Michelle Girard, chief U.S. economist at NatWest Markets in Stamford, Connecticut. “All of these people are going to be sort of feeling their way along a bit.”
Permanent Vote
The New York Fed chief serves as the vice chairman of the policy-setting Federal Open Market Committee and has a permanent vote on its decisions. In that capacity, Dudley has been a fierce defender of Yellen’s gradual approach to raising interest rates and allowing the central bank’s $4.5 trillion balance sheet to shrink slowly.
The New York Fed’s board of directors selects the district bank’s president, in consultation with the Fed Board in Washington.
Dudley turns 65 next year and has led the New York Fed since January 2009. The bank’s oversight of Wall Street gives it an out-sized importance relative to the other 11 regional Fed banks, although the Board in Washington has taken the lead on financial regulation since post-crisis changes to bank supervision.
The FOMC is next scheduled to meet Dec. 12-13, and trading in federal funds futures indicates investors expect the fifth rate increase since it began tightening policy in December 2015.