The fading Fed reign of economics PhDs

The fading Fed reign of economics PhDs

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Yesterday the Cleveland Fed announced that Goldman Sachs escapee Beth Hammack will be its new president, triggering predictable jokes about “Government Sachs”.

It looks like a strong appointment though, given the generally glowing things that FT Alphaville has heard about Hammack over the years. It also points to a growing appreciation that some financial nous can be useful at the US central bank.

But it also means that there will be one less economics doctorate in the Federal Reserve system, with Hammack (BA in quantitative economics and history from Stanford) replacing Loretta Mester (PhD in economics from Princeton).

This seems to be a trend at the moment. In a fit of boredom/curiosity, FTAV took a look at the composition of the Fed board and the various regional Fed heads 10 and 20 years ago, and compared them to the new constellation. People with PhDs in economics are in italics below:

A decade ago, 12 out of 17 Fed governors and presidents had economics doctorates, or ca 70 per cent. When Hammack replaces Mester in August, only 10 out of 19 will have one, or 53 per cent. There are now also four former lawyers, outnumbering the bankers (assuming we haven’t screwed up anyone’s background; if so, profuse apologies).

Two decades ago the reign of econ PhDs was even more dominant, with 14 out of 19 of the top jobs held by people with dismal science doctorates — almost 74 per cent, stats fans. And several of the remainder had solid economics credentials (Olson had a BA in economics, Geithner had an MA and Sandra Pianalto had both a BA and MA and was a Fed economist lifer).

How much this actually matters is open to debate. Powell was famously the first non-economist to chair the Federal Reserve since the disastrous William Miller in 1978-79, and has done a pretty good job. Some non-econ-PhDs still have plenty of experience in the field anyway, after all.

Most of all, it’s not like there isn’t a surfeit of econ PhDs across the Fed system anyway. If you want some econometrics done the aren’t many/any places that will do a better job. Getting more practical markets expertise in at the top is probably a good thing.

In fact, Hammack might have the most in-depth, relevant, coalface financial markets experience of any Fed governor or president in modern history?

The Dallas Fed’s Richard Fisher (05-15) was a former bond banker and founded an investment firm, but he drifted in and out of public service and the private sector in that typical American way. Lorie Logan previously ran the NY Fed’s markets desk and saw plenty of action during Covid, while Alberto Musalem led research at Tudor Investment Corp and Neel Kashkari had stints at Goldman and Pimco. But none of them have Hammack’s CV.

Hammack might have left Goldman as a partner, management committee member and co-head of its global financing group, but she served hard yards as an interest rates trader, and eventually became global head of repo trading and then short-term macro trading at Goldman, before being made treasurer in 2018.

Until recently she also chaired the Treasury Borrowing Advisory Committee, a body of big bond investors, traders and analysts that advises the US government on its borrowing plans.

Cleveland sits on the interest-rate setting FOMC this year, so Hammack will get her first interest rate vote at the September meeting. But given her background FTAV is mostly interested in her thoughts on the Fed’s balance sheet.

Further reading:
Life among the Econ (Western Economic Journal)

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