Officials at the U.S. Federal Reserve are looking to fill one of the most important positions at the world’s most powerful central bank: the president of the New York Fed. They should recognize that the safest choice isn’t likely to be the best.
This is an enormously complex job. It entails leading supervision of the country’s largest banks, overseeing an interbank payment system crucial to the country’s economic health, serving as vice-chair of the policy-making Federal Open Market Committee and running the market operations that put monetary-policy decisions into action. On top of all that, the New York Fed president must manage nearly 3,000 employees and be a skilled communicator with the public and, increasingly, with Congress.
The list of responsibilities (and I’m sure I’m missing some) is so great that nobody, right now, can be perfectly qualified to handle all aspects of the job. This also means, though, that the pool of acceptable candidates is very large. Some will be better at monetary policy. Some will be better at supervision. Some will be great leaders. Nobody will get it all right.
So, how should the relevant officials – the Board of Governors and the non-banker directors of the New York Fed – go about making their choice? One approach is to seek a comfortable person – someone with whom the key players are familiar, perhaps through many years of prior interaction. Another is to choose a challenging person, who -- perhaps thanks to sex or race -- brings a fresh and exciting perspective.
It’s still early in the process. But the various names that have leaked out of the far too secretive deliberations seem mainly comfortable, rather than challenging. That’s no accident: the Fed has a long history of opting for comfort over challenge. In part, that’s how we’ve ended up with more than a century of white male New York Fed presidents. It’s also why the Fed has, on more than one occasion, stumbled into dangerous groupthink that has harmed the economy.
Like many other large organizations, the Fed needs to do a better job of achieving diversity. This requires making many more challenging appointments. The New York Fed presidency would be a great place to start.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Narayana Kocherlakota is a Bloomberg View columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.
*Just to be clear: I’m not interested in the position (and I haven’t been contacted about it).
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