New York Fed's Dudley reported to soon announce retirement

[NEW YORK] Federal Reserve Bank of New York President William Dudley is close to announcing his retirement, according to CNBC, potentially widening the overhaul of leadership at the US central bank and raising questions about what it means for monetary policy.

Citing several people familiar with his plans, CNBC reported that Dudley could announce his intention as soon as next week to step down during the spring or summer, well before his term ends in January 2019. Mr Dudley declined to comment when reached by a reporter.

His early departure would mean the top three positions at the Fed changing over within a relatively short period. President Donald Trump announced on Nov 2 that Fed Governor Jerome Powell will be nominated, subject to Senate confirmation, to replace Janet Yellen when her term expires in February.

Vice-Chairman Stanley Fischer retired in mid-October. That leaves Mr Trump with three open slots on the seven-seat Board in Washington.

"Beyond the chair, the two most important people on the committee are the vice chair and the head of the New York Fed. Now both are unknown,'' said Mark Spindel, the author of a 2017 book about the Fed's relationship with Congress. "The unwinding of the balance sheet makes that job hugely vital.''

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, Mr Dudley has been a fierce defender of Ms Yellen's gradual approach to raising interest rates and allowing the central bank's US$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.

Mr 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.

Mr Dudley said in September that Ms Yellen has done a "fabulous job" and would be a fine choice for reappointment. Mr Trump had Ms Yellen on his short-list right up until he opted for Powell, who's viewed as likely to keep the central bank on the gradual path of rate hikes that she's sketched out.

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.

Strong Relationships

"Powell has the advantage of coming into the position with strong working relationships with the rest of the FOMC," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. "That shouldn't change much even with the addition of some new faces on the Board and now at New York."

A former chief US economist at Goldman Sachs Group Inc, Mr Dudley was a central figure as the Fed injected unprecedented monetary stimulus in the aftermath of the 2007-2008 financial crisis and the worst recession in decades.

"Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually," Mr Dudley said in a speech on Oct 6. "But, the upward trajectory of the policy rate path should continue to be shallow."

Prior to becoming president, Mr Dudley was in charge of managing open market operations at the New York Fed, which implements FOMC rate decisions. If the bank's directors decide to make another internal appointment that could point to Simon Potter, who currently has that role.

On the other hand, the bank in the past has also reached beyond the central bank to bring in an outsider.

Mr Dudley replaced Timothy Geithner, who worked at the US Treasury and International Monetary Fund before shifting to the Fed. Geithner went on to become President Barack Obama's first treasury secretary.

BLOOMBERG