Tuesday, November 24, 2015

The Oxford Economist Running the Fed’s Interest-Rate Manipulations

RW note: It is interseting the Fed is promoting Potter with a high profile story just before the Fed is likely to hike rates. 

BTW, He has been decent and cordial in email resoponses to my points and questions, not something you usually get from government-type officials when you are raising a point from a non-mainstream economic perspective.

One last point before the profile. Deep in the story the $2.6 trillion in excess reserves is discussed. Don't believe for a minute that the Fed or anyone else knows how to deal with those reserves if they come flying out rapidly and into the economy. The "tests" the Fed has been running have been like testing a flyswatter on a mosquito to see if the flyswatter can stop a hungry lion.

By Katy Burne

When the Federal Reserve finally decides to raise short-term interest rates from near zero, it will be Simon Potter’s job to make it happen.

The 55-year-old, British-born head of markets at the Federal Reserve Bank of New York had never worked at a securities-trading firm before taking his current post three years ago. The economist manages the Fed’s $4.2 trillion securities portfolio and runs a team of nearly 500 traders and analysts. Now, Mr. Potter will be faced with one of the trickiest trading assignments around: making it more expensive to borrow money when the financial system is awash in it.

Fed officials are considering lifting short-term rates at their policy meeting Dec. 15-16 after leaving them near zero for seven years. Traders in Mr. Potter’s group have spent more than two years testing the levers they will use and trying to sell Wall Street on the idea that they can be effective.

“Our testing program,” Mr. Potter told money-market professionals at a dinner off Wall Street in mid-April, “gives us confidence that we have the necessary tools to enable a smooth liftoff.”

Some traders aren’t so sure. Already, the Fed’s benchmark federal-funds rate is proving difficult to control around the end of the month, when some banks retreat from borrowing to dress up their balance sheets.

If the Fed can’t raise its federal-funds rate from near zero—or lifts it and other short-term market rates don’t follow—its credibility and influence over the direction of the economy could be weakened.

“There are legitimate questions about the effectiveness of these new tools and their potential unintended consequences,” said Michael Hanson, senior economist at Bank of America Merrill Lynch, who previously worked in monetary affairs at the Federal Reserve Board. The federal-funds rate is the rate banks charge each other for overnight loans.

Mr. Potter is an Oxford-educated economist who joined the New York Fed in 1998 after eight years as an academic at the University of California, Los Angeles. Erica Groshen, now commissioner of the U.S. Bureau of Labor Statistics, said she gave him that first government job.

“His insight and instincts were so compelling that I hired him,” she said, “despite some colleagues’ worries that his analytical approach was too technical and abstract to be useful for day-to-day policy work.”

He built a reputation for blunt talk, smart analysis and commitment, according to people who know and have worked for him, as he rose through the ranks of the research and statistics department, eventually becoming co-head.

For years, he commuted two hours each way from Yardley, Pa., to arrive at the New York Fed’s wedge-shaped, limestone and sandstone fortress in downtown Manhattan by 7.30 a.m., a former colleague said. In 2011, he spent four months at the Treasury Department managing the team that produced the first annual report for the Financial Stability Oversight Council, a panel of top U.S. regulators created after the financial crisis to identify risks to the financial system.

Read the rest here,

1 comment:

  1. Oxford is to the UK, what Yale is to the US. Both are the breeding grounds of tomorrow's spooks and intelligentsia. If you want to know whether some "policy adviser" or "administration official" is dwelling in the inner circle(s), the degree from one of those institutions is one of the markers.

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