Academic fills top Philadelphia Fed seat

The Reserve Bank of Philadelphia has appointed a university chief who has been serving on its board of directors to succeed noted hawk Charles Plosser as its president at a time when US monetary policy is approaching a turning point.

Patrick Harker, a relative unknown in monetary policy circles, will take over the helm of the regional bank on July 1, having already worked on its board for the past three years. He is president of the University of Delaware and is a professor of business administration and of civil and environmental engineering.

The position will put Mr Harker on the rate-setting Federal Open Market Committee at a critical moment, as the Fed gears up for its first interest-rate increase after leaving its official rate on the floor for over six years. The Dallas Federal Reserve is preparing for its own transition as its president Richard Fisher prepares to retire this month.

It also comes as the Fed system is put under intense political pressure by Congress, where Republicans are complaining about the central bank’s transparency and Democrats are attacking its links with commercial banks.

James E. Nevels, chairman of the Philadelphia Fed’s board of directors, singled out Mr Harker’s “deep roots in the region”, as well as his academic background in announcing the appointment. Mr Harker has a PhD in civil and urban engineering as well as a masters degree in economics.

Fed watchers said Mr Harker’s views on monetary policy were as of yet unknown, but he will not immediately have the task of voting on interest rates when he joins the FOMC. The voting role rotates among regional Fed presidents, and the Philly Fed post does not next come up until 2017.

That will give him time to “gain his footing and figure out the landscape” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “The biggest challenge is they are going into a period where they are trying to have some semblance of normality on rates — lift-off — and that is easier said than done.”

Mr Harker is on the board of directors of Pepco Holdings and the Huntsman Corp, as well as a founding member of the board of advisers for Decision Lens. He is in discussions with the bank to determine which boards he would have to leave depending on the Fed’s rules on external affiliations.

Mr Plosser was today marking his first day after leaving the Philly Fed by discussing the future of the Fed system at a conference in Washington DC.

At the Brookings Institution conference, Peter Conti-Brown, a fellow at Stanford Law School, argued that the Fed’s Board of Governors should be given the power to appoint and remove presidents of the 12 Federal Reserve Banks, as part of an overhaul to bolster accountability.

However Mr Plosser defended the system of regional banks, arguing that the biggest risk was of making the Fed less independent and more susceptible to political whims.

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His concerns come amid an increasingly heated debate over the way the Fed is functioning, as Republicans push for a so-called “Audit the Fed” package that would subject its monetary policy decisions to formal external scrutiny.

Separately the New York Fed has come under political fire for its relations to banks, with Democratic Senator Jack Reed last year proposing that the president of the New York Fed be subject to presidential appointment and Senate confirmation.

The Federal Reserve System was designed to avoid a concentration of power by delegating responsibilities for monetary policy and bank supervision to 12 Reserve Banks around the country from New York and Boston to San Francisco.