The Federal Reserve is in a bit of a rut -- it keeps hiring former Goldman Sachs executives. On Tuesday, the Minneapolis Fed named Neel Kashkari as its new president.
In August, the Dallas Fed named former Goldman Sachs Vice Chairman Robert Kaplan as its president. With Kashkari's appointment, four of the Fed's 12 regional branches are run by former Goldman executives. The head of the Philadelphia Fed, Patrick Harker, was the trustee of the Goldman Sachs Trust, and the head of the New York Fed, William Dudley, was the bank's chief economist.
Kashkari began his career in finance at Goldman Sachs, then joined the U.S. Treasury, where he eventually ran the massive bank bailout program enacted in the depths of the 2008 financial crisis. After leaving Treasury, he joined the investment manager PIMCO and unsuccessfully ran for governor of California in 2014 as a Republican.
For its part, Goldman Sachs is trying to do away with the perception that it is too close to its regulators. In the wake of a criminal case where a former New York Fed employee used confidential government documents while working as a Goldman banker, the firm changed its conflict of interest policies to begin evaluating what work employees would be restricted from doing before the formal interview process begins.
Beyond his bank background, Kashkari is a bit of a left-field choice for a top Fed role. He's not an economist and his previous jobs didn't involve monetary policy. His role in the Troubled Asset Relief Program did, however, put him squarely at the center of ensuring the stability of the financial sector, which is one of the goals of the Federal Reserve.
In an interview with The Wall Street Journal published shortly after his appointment was announced, Kashkari did not detail his view on interest rate policy. Instead, he said he broadly approved of recent Fed policy and would rely on data to form his view. Kashkari will take office on Jan. 1, 2016. He replaces Narayana Kocherlakota, who shifted his view significantly in the face of changing economic circumstances. Kocherlakota changed from favoring higher interest rates to fight inflation to advocating for maintaining low interest rates to stimulate the economy.
Kashkari told WSJ his resume would be an asset and that it shouldn't be boiled down to just Goldman Sachs and the Treasury. To manage TARP, “the fact that I had went to Wharton and got my MBA and worked at Goldman are all fine, but I really relied on my engineering skills as a research engineer working on NASA missions,” Kashkari told The Wall Street Journal, employing the rarely used "people criticize me for being a banker, but really I’m a rocket scientist" tactic of feigning modesty.
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