The hunt for a new president of the Federal Reserve Bank of Kansas City has turned into a marathon that’s days from becoming the longest search this century.
(Bloomberg) — The hunt for a new president of the Federal Reserve Bank of Kansas City has turned into a marathon that’s days from becoming the longest search this century.
The effort began nearly 11 months ago on May 25, 2022, with Esther George’s announcement of retirement at the mandatory age of 65. At 10 months and 24 days, the search trails by just five days the process that resulted in the hiring of Minneapolis Fed President Neel Kashkari in 2015. And the reason that one went so long is his predecessor’s departure was announced unusually far in advance.
It also, as of Tuesday, matched the length of the second-longest modern search, which led to the appointment of Richmond Fed President Thomas Barkin in 2017.
Regional Fed banks are under renewed congressional scrutiny following a series of incidents including irregularities over financial transactions and questions over how its leaders are picked. Some lawmakers have proposed legislation to improve transparency, while the recent failure of Silicon Valley Bank — which was supervised by the San Francisco Fed — has stoked calls for accountability.
A review of 27 Fed president searches over the last 23 years shows a median of about six months between the announcement of a retirement or resignation and the announcement of a successor. The shortest searches were 1 month and 17 days, with the hiring of Richard Fisher in Dallas in 2004, and about two months for the appointment of New York’s William Dudley in 2009.
Fed governors in Washington including the chair and vice chairs are nominated by the president and confirmed by the Senate. As part of the Fed’s unusual public-private structure, however, the presidents of the 12 regional Fed banks are chosen in a more opaque process by local directors, subject to approval by Fed governors.
The reason for the length of the Kansas City Fed search isn’t clear.
The regional Fed bank said in a statement Tuesday that that “while there is no deadline associated with this process, the search committee has been diligently working to identify a candidate who is well equipped to engage with the 10th District’s communities and understand its economic profile.”
The Fed Board declined to comment.
“The lack of transparency around Fed regional bank president hiring makes it impossible to tell what is really going on in Kansas City,” said Aaron Klein, a senior fellow in economic studies at the Brookings Institution and former Treasury Department official in the Obama administration.
By contrast, the record length of time between Minneapolis Fed President Narayana Kocherlakota’s announcement of stepping down and the hiring of Kashkari occurred because the departure was announced more than a year in advance, which is unusual. The formal search period lasted just five months, the Minneapolis Fed said.
Independent Spirit
Like most regional Fed chiefs, the Kansas City president has a rotating vote on monetary policy every third year, with the next round coming in 2025. The bank is known for an independent spirit within the Fed system, including regular dissents on interest-rate decisions.
It also hosts the annual economic symposium in Jackson Hole, Wyoming, which has been a top forum for global central bankers since the 1980s.
In a video posted on the bank’s website, directors emphasized the importance of choosing a president who represented the region — spanning seven states — and understood its diverse economy.
“You want someone who has the culture and values of the 10th district,” former director Doug Stussi said on the video.
The Kansas City Fed’s first vice president, Kelly Dubbert, assumed duties of the president after George retired in January. Dubbert attended both Federal Open Market Committee meetings this year.
Fed presidents can influence the monetary-policy debate with their speeches and interviews even without formal votes. Both George and her predecessor Thomas Hoenig were largely seen as monetary-policy hawks pushing for higher interest rates, and as the FOMC faces difficult choices over when to pause its rate-hike campaign, the absence of one president could remove a hawkish voice.
Hawkish Voice
“The Kansas City Fed has a long history of being on the more hawkish side,” said Wells Fargo & Co. economist Sarah House. “So from that perspective, the search is taking a little bit longer and you wonder about, do you still have perhaps that hawkish voice?”
Several factors are hanging over the search.
Hispanic US lawmakers led by Senator Bob Menendez are urging the appointment of the Fed’s first-ever Latino policymaker. They have boosted pressure after other new presidents weren’t Latino and the slot for Fed vice chair recently opened up in Washington.
Other issues the Kansas City Fed faces to a greater magnitude than counterparts include cryptocurrency and banking for marijuana sellers.
These and other factors make the search “the most delicate open position in the reserve banks since at least” 2009, said Kaleb Nygaard, research fellow at the University of Pennsylvania’s Wharton Initiative on Financial Policy and Regulation. “The stakes are simply higher across more dimensions than normal.”
Moreover, the Fed this year is under more scrutiny with Congress mulling whether to make adjustments to financial regulation following SVB’s failure and the Fed’s intervention to prop up banks, Nygaard said.
While the decentralized Fed structure was designed to spread power away from Washington and New York, the Fed board can also get closely involved in decisions.
In the lengthy Richmond Fed search, Fed Chair Jerome Powell, then a governor, was intimately involved over a 10-month period in offering names of potential candidates and feedback on others, according to emails released to Bloomberg in 2018 under the Freedom of Information Act.
(Adds detail on Minneapolis Fed search in second and 11th paragraph.)
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