By Aline van Duyn in New York
Published: August 10 2009 23:30 | Last updated: August 10 2009 23:30
The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street’s most active recruiters of financial talent.
The New York Fed – the arm of the US central bank that implements its monetary policy – plans to increase the staff in its markets group to 400 by the end of the year – up from 240 at the end of 2007.
The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector’s woes would lead to a loss of up to 140,000 jobs.
The Fed’s need for more traders is a direct consequence of the central bank’s efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks.
Patricia Mosser, senior adviser, said: “Once we started to have to implement programmes that were clearly outside the traditional credit-easing tools that the Fed has used before, it became illogical to manage some of the new programmes inside the current structure.”
She said many of the new programmes – ranging from first-ever purchases of mortgage-backed securities to lending money to hedge funds to buy securities backed by loans – “needed their own resources”.
The Federal Reserve mostly funds itself from interest income on securities it owns. It then returns any money left over to the Treasury.
The growth in the Fed’s permanent staff highlights the fact that, even if some of the Fed’s credit expansion policies are reduced as markets improve, its move into new corners of the financial markets such as commercial mortgage debt will leave an imprint on its operations for some time.
It also comes as plans by the Obama administration to give more regulatory powers to the Fed as a systemic risk supervisor have come under scrutiny, not least due to the central bank’s inability to have fully spotted the risks that had built up in the financial system in recent years.
One of the key issues ahead is how the Fed will manage its exit strategy. “What are the markets going to look like when we pull out?” said Ms Mosser. “It is hard to know, even in markets that are functioning better because the Fed has stepped in.”
Additional reporting by Michael Mackenzie and Francesco Guerrera in New York