Pianalto's Departure a Chance for Cleveland Fed to Speak up

Friday, 01 Nov 2013 07:17 AM

 

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Sandra Pianalto, a quietly ardent supporter of Federal Reserve Chairman Ben Bernanke, turned some heads this month when she came out against the central bank's recent decision to keep pumping so much money into the U.S. economy.

Yet the speech by Pianalto, who is set to retire as president of the Federal Reserve Bank of Cleveland early next year, may set the tone for a yet-to-be-named successor who could return Cleveland to its outspoken, inflation-fighting roots.

Directors at the Cleveland Fed have formed a committee and last month hired New York-based executive search firm Spencer Stuart to help them find a new president.

Two names from the within the Fed bank have emerged as possible successors: research director Mark Schweitzer, 49, and Greg Stefani, 52, the first vice president, which is the position Pianalto held before she took the reins in 2003.

But interviews with several current and former Cleveland Fed officials suggest there is a sense it is time to tap a more independent-minded outsider in the mold of previous presidents Jerry Jordan and Lee Hoskins, who still loom large as policymakers who were willing to take on authoritarian Fed Chairman Alan Greenspan in decades past.

"They were heavyweights in the price-stability message and a lot of those ideas were absorbed into policy," said Gregory Hess, a former visiting scholar at the Cleveland Fed who was also an economist at the Fed Board in Washington.

Pianalto had less influence outside of Cleveland, said Hess, who is now president of Wabash College. "So I would guess that the Federal Reserve Bank of Cleveland would probably lean the other way and look for someone with a bigger voice to redirect monetary policy."

Inside the Cleveland Fed there is excitement but also some unease about possibly changing course after Pianalto reliably supported a policy of low rates and three rounds of bond-buying stimulus since the 2008 financial crisis. The resulting recession hammered the manufacturing heart of Ohio and western Pennsylvania, and badly depressed its housing market.

Focusing much of her public commentary on education, housing and other ways to revive U.S. Rust Belt communities, Pianalto has mostly avoided national headlines by not once dissenting against monetary policy decisions made in Washington.

Further setting the stage for change in Cleveland, Mark Sniderman, Pianalto's chief policy officer and another long-time insider who would be her natural successor, is retiring in January.

"It's a really good opportunity to bring in some fresh blood," said a Cleveland Fed official who requested anonymity given the ongoing search for a new president. "Not to shake things up, but just for something different."

Pianalto, Sniderman, Schweitzer and Stefani declined to comment. As did the directors leading the search committee: Richard Smucker, chief executive of The J.M. Smucker Co. and Christopher Connor, CEO of Sherwin-Williams Co.

 

MAKING A LIST

Pianalto's successor will join a central bank in flux.

Fed Vice Chair Janet Yellen has been nominated to fill Bernanke's shoes when he retires on Jan. 31, and the White House could name up to four new governors next year, meaning a broader hunt is on for talented U.S. economists and bankers.

One outsider that Cleveland's six-member committee is expected to consider is David Altig, the Atlanta Fed's well-respected director of research who once reported to Sniderman as an associate in the Cleveland Fed's research wing.

Current and former officials also say a longer-shot candidate is Michael Bryan, a senior economist at the Atlanta Fed who also has roots at the Cleveland Fed.

Altig and Bryan declined to comment.

Tapping someone like Marvin Goodfriend, however, would make a bigger splash.

The economics professor at Pittsburgh's Carnegie Mellon University was once the top advisor to former Richmond Fed President Alfred Broaddus, a policy hawk. In 2004 they co-authored a paper urging the central bank to "lock in credibility for low inflation" by formally targeting 1 to 2 percent inflation growth.

The Fed ultimately set a 2-percent target early last year after decades of internal debate that led back to Hoskins, who ran the Cleveland Fed from 1987 to 1991. He had pushed hard for a more structured and less discretionary policy approach to stabilizing prices and helped establish the median Consumer Price Index, which was born in Cleveland and is widely cited today.

Jordan, who succeeded Hoskins, kept up the fight and as the tech bubble quietly inflated in 1998 he dissented against a series of rate cuts backed by Greenspan.

Jordan and Hoskins "expressed a great deal of intellectual and policy independence from anything determined in Washington or New York," said Walker Todd, a lawyer who was legal and research officer at the Cleveland Fed from 1985 to 1994.

Pianalto "was a good and reasonable choice as president, but the whole question of defying Washington sort of goes away," said Todd, a research fellow at the American Institute for Economic Research.

Pianalto's speech on Oct. 8 was a rare exception to this. Though she does not have a vote on policy this year, Pianalto told a Pittsburgh audience that she had wanted to reduce the Fed's bond-buying program at a meeting in September.

Whoever takes over at the relatively small Cleveland Fed bank will have a vote on policy every other year, an advantage shared by the Chicago Fed over most of the central bank's other 10 districts that - with the exception of New York's permanent vote - only get a say every three years.

The advantage is a nod to Cleveland's historic position as a financial and transportation hub in the U.S. Midwest.

Pianalto, 59, was born in Italy and joined the Cleveland Fed as an economist back in 1983. She has said she will remain as president until a successor is named.

© 2014 Thomson/Reuters. All rights reserved.

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