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Interview with E. Gerald Corrigan

November 1, 1990

Interview with E. Gerald Corrigan

As president of the Federal Reserve Bank of New York, E. Gerald Corrigan has been cited as a man who is held in high respect by his peers.

For good reason: it is the New York Fed which conducts the System's open market operations, influencing the money supply and interest rates through the buying and selling of Treasury securities. Corrigan also retains a permanent seat on the Federal Open Market Committee, the Fed's policymaking board. In addition, as someone who has spent his entire career within the Federal Reserve System, Corrigan's views on System operations have considerable influence.

It is not just the length—but the diversity—of his 22-year Fed career that Corrigan counts as important. In his early years with the New York Fed he held positions with various departments, including accounting, computer, research and personnel. "Those were some of the best things I ever did," Corrigan says in the following interview, "because those experiences have given me insights I find incredibly valuable in my current job."

Before becoming president of the New York Fed in January 1985, Corrigan served as president of the Federal Reserve Bank of Minneapolis from August 1980 through December 1984—years he recalls warmly: "I still look back with enormous fondness to my relationships at the Minneapolis Fed, not just with the people in the bank but throughout the district."

Corrigan, who has a master's and a doctorate degree in economics from Fordham University, began his career with the Fed in 1968, when he joined the New York Fed as an economist in the domestic research division. In 1976 he became a vice president of the bank and in August 1979 he became special assistant to Federal Reserve Board Chairman Paul Volcker in Washington, D.C. Promoted to senior vice president of the New York Fed in January 1980, he left the East Coast later that year to join the Minneapolis Fed.

In the following interview, Corrigan reflects on his career path, management style, the dynamics of modern international finance and his years in Minneapolis.

Region: While you were president of the Federal Reserve Bank of Minneapolis you had a reputation as being a "touch it, feel it, smell it" policymaker; in other words, hard cold numbers were less meaningful to you than the personal contacts and some of the anecdote material of your experience. Is that still true now that you've moved into a large and more complex arena?

Corrigan: The premise for that question is one that I can understand, but I think it's a little bit misplaced. In point of fact, I probably spend more time with the numbers and hard analysis than most policymakers; indeed, a lot more time. And as many of my former colleagues at the Minneapolis Fed will remember, that's one of the reasons I write all own speeches from scratch. I think that is a way to bring to bear a very rigorous form of mental discipline and thought process.

Having said that, it is also true that I do tend to reach out to virtually any source I can find for impressions, anecdotes and insights. I view that not as substitute for hard analysis, but as a supplement to it. I think there are many, many occasions in which the insights we get from that outreach process really can be helpful in trying to read between the lines of the numbers and the hard analysis. I think that is true in general, but it is particularly true in the context of dealing with here-and-now problems that might, in the eyes of some, have crisis-like characteristics. When confronted with events like a stock market decline or even a power blackout—as we experienced in New York in early August—that network of contacts can be especially valuable.

Region: In the same vein, you had reputation as being a hands-on manager, somebody who knew what was going on at every operational level of the bank, regardless of whether the action was in the priced service area, the research department or automation. Given the much greater size of the New York Fed, you must have to rely much more on delegation and second- or third-hand information. Is that a hard adjustment to make?

Corrigan: There is something to the suggestion that you can't teach old dogs new tricks. And I don't think that I'll ever fully divest myself of some of those traits and the way I approach things. Some of that, of course, does reflect the fact that over the years I've had the good fortune of working in a number of very varied areas. In my early years at the New York Fed I believe I worked in 10 or so different departments. Part of what you see here is a reflection of the scope of experience I've had in the Federal Reserve over the years. For example, when I was president of the Federal Reserve Bank of Minneapolis I served, at one point, as chairman of the Federal Reserve's Pricing Policy Committee. By doing so, I experienced a whole raft of things I would ordinarily not have come in contact with. And that kind of experience sticks.

So I do take some satisfaction from the fact that I have a reasonable working knowledge of most things we do as central bankers. Having said that, there is no question that the New York Fed is much more complex than most other Federal Reserve Banks. Our scope and our activities are much broader, and, of course, that—by its very nature—does mean that we have to have a much better approach to screening and establishing our own priorities.

One thing that helps that process, at least from my perspective, is that the vast majority of the people in the New York Fed are people I've know for years; I've worked with them for years. They know me and I know them and that helps. But if you ask me, point blank, if I at times would be better off by delegating more, I think the answer would be yes—I would concede that point.

Region: In less than 10 years you've gone from being a Reserve Bank vice president—pretty much of an insider—to being one of the more significant players on domestic and international economic issues. What's enabled you to make that transition with as few slips of the foot (or tongue) as you have?

Corrigan: Part of the answer is that I've literally grown up in the Federal Reserve. I was very fortunate at every step of my career to be associated with people for whom I have enormous respect.

Even in my earliest days here in New York, there were people with whom I came into contact who were old-school central bankers. And they had a very strong view and tradition of the essence of central banking. They stressed the need to be conservative in your approach to issues—conservative meaning careful—and discreet in the conduct of the business of central banking. Those people had a big impact on me.

Much has been said about my long association with Paul Volcker, and obviously I learned a lot from him. But even later on, I've had the great privilege of counting among my friends and colleagues some of the most prominent of the international central bankers. In their presence, you observe, you see, you learn, and I think that experience—in its totality—has really helped me make the transition.

I'm under no illusions that the transition hasn't involved some false steps along the way. Sure it has. But as I said, if I had to pick one thing that has helped me make it reasonably well, I think it would be the things that I have seen in other people that I've respected and the efforts that I've made to try to emulate them.

Region: In spite of a record that must look pretty near perfect to an outsider, there must be some things that, in hindsight, you'd like to do over. What might some of those things be?

Corrigan: Well, interestingly enough, if you take the broad sweep, I don't think there is anything major I would do differently. There was a time, for example, in the '70's—after I had been lifted out of the research department and related activities—that I spent the better part of seven years in the operational and administrative part of the bank here in New York. I was a bit uneasy then. There were moments when I found that experience frustrating and I wasn't quite sure how it all would come together. It didn't always seem to me to make a whole lot of sense for somebody who considered himself an economist to be running the accounting department, or the computer department.

However, in retrospect, those were some of the best things I ever did, because those experiences have given me insights that I find incredibly valuable in my current job. For example, I've made the point several times that in terms of de novo learning, I've gotten as much from my association with the accounting department as just about anything I've ever done.

Certainly, I would put my four years at the Minneapolis Fed in that same category. It was a tremendous experience for me in every respect and I still look back at it with great fondness, not only for the institution itself but for the opportunity I had to learn a fair amount about a large segment of our economic system that I otherwise would never have had the chance to begin to understand.

There may have been some frustrations along the way, but again, I think I can say with a very, very straight face, that if I had to do it all over I wouldn't change much. Now, that's not to say that I have any illusions of batting one thousand or anything close to it. Obviously I can think of individual instances or decisions or episodes when, with the benefit of hindsight and/or more experience, I might have done some things differently. One of the things I still have to work at is trying to strengthen working relationships with people. I, in particular, probably have to work harder at being a little more patient. So, there are always things I'd like to improve, but as I said, if I had to rewrite the script I wouldn't change much in substance.

Region: The Fed has always been a dynamic institution, and perhaps one of the reasons it has been a successful institution is that it has managed change without losing its essential institutional presence. What are the significant changes you've experienced during your tenure at the Fed?

Corrigan: If you go back over the 20 years or so that I've been at the Fed, I think the biggest single change is the context within which the Federal Reserve operates. The institution is much more visible, much more in the public eye and the public mind today than it was 20 years ago.

There's a variety of reasons why that is true, but for these purposes they're relatively unimportant. Clearly, however, our expanded visibility is a very, very major change. And the change by and large is for the good, because it works in the direction of making the institution function even better. But it's also a challenge. It does mean that the premium on "getting it right" is higher. It means the premium on being sensitive to the environment in which we operate is higher. And it means that our sensitivities to all the dimensions of that environment have to be greater. Still, to many observers, the Federal Reserve is something of an enigma. In a way, that will always be true, because some of the things we do are so complex that the public at large has difficulty associating with the nuances.

There are other changes. Certainly our relationship with the rest of the world, both as a central bank and a nation, has changed profoundly over the last 20 years. We see that in many facets of what we do and how we do it, whether it's in our bank regulations work or payments system or, certainly, in monetary policy. That would be the second of the truly major changes. You could go on to others, including the change in the technological environment and soon, but I think the expanded visibility and the change in the international setting in which we operate are the most profound changes in the past 20 years.

Region: How about the next 10 years?

Corrigan: It's awfully hard to judge the environment over the next 10 years—I think the events in the Mideast since early August provide a very forceful reminder of that. But I do think that the international setting probably will continue to have a profound impact on what we do, how we do it, our priorities, and how we manage our collective affairs.

I also think the monetary policy environment—including its international dimension—will continue to get more complex. The linkages between policy and both the economy at large and the functioning of the financial system will be changed by technological and other considerations. Responsibilities in the area of bank supervision also will continue to undergo major changes, partly because the banking and financial system itself is going to undergo major changes.

I can't claim to be clairvoyant, but I certainly think that it is pretty well assured that the environment will continue to become more complex and the international side will continue to expand rather than shrink. I view all these things as making life interesting, making for new challenges, and as I like to say, making for an interesting—if not fun—environment for us to work in. But it's not going to be easy.

Region: How do you see the developments in Eastern Europe affecting our financial markets?

Corrigan: If any or all of the Eastern European countries—to say nothing of the Soviet Union and China and the developing world—are really going to successfully make the change to dynamic, market-oriented economies with substantial gains in standards of living, one thing we know, without a doubt, is that they will require capital flows from the rest of the world.

Now, when you start out in a world that, arguably, is already relatively short on savings, and you superimpose upon it further net increases in demand for savings, there can be some very important implications for the global economy. It is not inconceivable, for example—looking at the global supply of savings and the demands for those savings—that these developments might mean that for at least several years real interest rates will tend to be higher than they otherwise might have been. That's one clear channel within which these developments can have important implications on a global scale. Another, of course, is the trading system. I think it is quite clear that for the developing countries and Eastern European countries—and they're quite different—one of the necessary, but not sufficient, conditions for success is that they develop markets for the export of goods and services. That has to occur.

So, whether it's in terms of trade in hard goods or flows of capital and savings, the developments in these countries will have implications well beyond their own borders. And this will be another of those phenomena that will be a major issue, I suspect, certainly through the first half of the '90s and perhaps beyond that.

Region: As a percentage of total staff (and this is an important question for the folks in Minneapolis) which Reserve Bank—Minneapolis or New York—has better softball players?

Corrigan: Well, that's a relatively easy question to answer. So long as Scott Dake is employed by the Federal Reserve Bank of Minneapolis, I have to give the advantage to Minneapolis. But if Scott leaves, I reserve the right to reevaluate my answer.

Region: In your earlier career at the New York Fed, you were personnel officer and developed considerable expertise in that area. What kind of personnel changes do you see coming for Reserve Banks—in terms of staff qualifications? Is the Fed going to continue to be a "prestige" employer and be able to attract the staff it needs—at least in markets like New York?

Corrigan: You will continue to see the kinds of changes in the composition of the work force pretty much across the Federal Reserve System that we've seen in recent years. There will be a continued shift toward more so-called professional people, more so-called technical people, and higher levels of technical sophistication across the board. I think that's baked in the cake, and that grows out of some of those things I talked about before in terms of the context in which we operate.

These changes bring with them two sets of challenges. First, I think it's safe to say that the task of successfully managing such a workforce is more difficult. It's harder to measure comparative performance, it's harder to measure output, it's harder to judge what's good and what's not so good. I think that's a very big challenge in itself. Adjusting our approach to management in a way that is sensitive to the changing characteristics of what we're doing, the characteristics of the work force ... that's a very big challenge.

Second, I'm actually quite optimistic about our institutions being able to attract and retain top quality people. This, in turn, goes back to part of what I said earlier: it's one of the advantages of expanded visibility, it's one of the advantages of a challenging environment. I know that our experience at the New York Fed in the last several years in terms of recruiting has been sensational, absolutely sensational. Our intake of highly qualified young people from the universities is gangbusters. Our most recent experience in recruiting economists has been terrific. We've had a very strong pattern in terms of recruiting lawyers for several years running. And, as you know very well, it's not because we overpay them.

I make it my business to meet regularly with as many of these young people as I can. I try, for example, to have a dinner every month with 15 or 20 of them. There's just no question in my mind that at least at this particular point in time there is a certain attraction growing out of what we are and what we do, growing out of the fact that the institution as a whole does have a good reputation. Now, we're going to have to work very hard to preserve that, but if we do I'm quite confident that our ability—even in this marketplace—to attract very capable young people will be preserved. I think the bigger challenge, in some ways, is on the retention side. Getting them here is one thing, but keeping them challenged and motivated, keeping them feeling that they're contributing, that's what's really important. The retention issue, if anything, is larger than the attraction issue.

Region: At one time you expressed a personal desire to own a piece of a trout stream in Montana. Is that still a dream—or has your eastern anchor sunk so deep that the dream has become a trout stream in Vermont?

Corrigan: I still have very strong ties with Montana. As a matter of fact, not a year has passed when I haven't gotten out to Montana at least once, and sometimes twice. In fact, I just spent a week there earlier this month [August]. My affection for that part of the country has actually grown, and I still maintain close personal relationships with people I first met when I joined the bank of Minneapolis, including some of the former directors of the bank. On my various trips to Montana, I always take a little time to check out the real estate situation, and while I have not done it yet, I'm certain that at some point I'll buy a condo at Big Sky or a piece of property out there.

Region: What have been the formative experiences of your life—both before and since you've come to the Fed?

Corrigan: First of all, I grew up in an environment—both family and other-wise—that put a premium, I guess you'd say, on hard work. That was something that people just took for granted. I think that it's also more and more clear to me, through the passage of time, that my academic training in college had a big impact that I didn't recognize then. I had the good fortune, both in college and graduate school, to attend Jesuit universities. And back then we were required to take a three-hour course every semester in philosophy. I liked it then, believe it or not, I really did. But in retrospect I have even more appreciation that that kind of training, in the great liberal arts tradition, was extremely valuable in terms of learning how to think.

The other thing I would single out I touched on before: whether it was by design or accident, I had the good fortune in my first decade in the Federal Reserve of working in many different departments and areas of this bank. That has, again, turned out to be incredibly valuable. This really shows through when there's a serious problem in the financial system—domestically or internationally. There are many insights that I derive by second nature because I know how things really work. And knowing how they work is obviously enormously helpful in figuring out how to deal with a problem. So I'd put that high on the list. And I try to impress that on the young persons that work here, too: Breadth of exposure really is a big plus.

Region: Finally, any further comments on any other topics?

Corrigan: I touched on this before, but I still look back with enormous fondness to my relationships at the Minneapolis Fed, not just with the people in the bank but throughout the district. I always had, and still do have, a very special feeling for the directors that I had the good fortune to work with when I was at the bank. Those relationships, both professional and personal, were super. Those years will always claim a very special place in my mind and my heart. Consistent with that, I observe the continuing contribution of the bank under Gary's leadership in many, many areas. Clearly the intellectual leadership the bank provides—in part from Gary personally, but also through the research department—continues to be exemplary. But I also see, time and again, where critical working groups and task forces for Systemwide issues are involved, the contribution from the Minneapolis Fed to System endeavors is distinctly disproportional, in both qualitative and quantitative terms. That pleases me no end, but it doesn't surprise me.

Region: Thank you, Mr. Corrigan.