New York Fed chief Dudley retiring in middle of 2018

William Dudley, the president of the Federal Reserve Bank of New York, is set to retire six months before his term expires, further shaking up the Fed’s interest rate-setting committee.

Dudley, 64, will exit in mid-2018 instead of serving out a term that would have lasted until January 2019.

The New York Fed chief serves as vice-chairman of the crucial Fed committee that sets interest rates, giving him or her significant influence over monetary policy. Dudley also played a central role in guiding the Fed’s response to the 2008 financial crisis.

Dudley is among the core members of the policymaking committee and his views were typically in line with those of Fed Chair Janet Yellen. He’s generally considered a “dove” by Fed watchers, meaning he tends to focus more on keeping interest rates low to bolster the economy and employment rather than on lifting rates to head off inflation.

The Fed, however, is poised to rates in December for a third time in 2017 and has pencilled in three more hikes next year amid an improving economy and low 4.1 per cent unemployment rate that’s expected to eventually spur faster inflation.

Dudley has staunchly backed the strategy of gradual rate increases. The Fed also has begun reducing the US$4.5 trillion asset portfolio it amassed during and after the financial crisis in an effort to push down long-term rates. Shrinking the balance sheet is likely to nudge those rates higher.

Dudley became president and CEO of the New York Fed in the depths of the Great Recession on January 27, 2009, and earned five-year appointments in the role in 2011 and 2016. He had joined the New York Fed in 2007.

“I have deeply appreciated Bill Dudley’s enormous contributions to the FOMC, his wise counsel and warm friendship throughout the years of the financial crisis and its aftermath,” Yellen said in a statement. “The American economy is stronger and the financial system safer because of his many thoughtful contributions. The Federal Reserve System and the country owe him a debt of gratitude.”

Dudley said, “I am extremely proud of the work we have done in New York, and as a System, from our efforts to help the nation navigate the financial crisis to beginning the process of normalising the balance sheet to our work on reforming the culture of the financial services industry.”

Dudley’s departure comes after President Trump last week announced his proposed appointment of Fed Governor Jerome Powell as Yellen’s replacement. He will take the helm in February. Fed vice-chairman Stanley Fischer also recently announced his departure.

All told, Trump can fill three seats on the Fed’s board of governors, a panel that doesn’t include Dudley and the other Fed regional bank chiefs. Board members sit on the interest-rate policy committee and also pass banking regulations. A fourth seat would open if Yellen steps down from the board after her term as chair ends in February.

Another Trump-appointed board member, Randy Quarles, vice-president of banking supervision, took office last month.

Dudley, like other regional Fed bank presidents, is chosen by the regional bank’s board of directors and subject to Fed approval. The selection will be “the second most important” after Powell’s nomination, Barclays economist Michael Gapen wrote in a note to clients.

Before he became New York Fed president, Dudley was executive vice-president of the bank’s markets group. He was an economist at the Fed in the early 1980s and then vice-president at the former Morgan Guaranty Trust Co before joining Goldman Sachs and rising to partner and managing director.