The Wall Street Journal
The Federal Reserve pumped $1 trillion into the financial system during a year of harried efforts to rescue the economy. Brian Sack's job is to figure out how to get the money back out.
Mr. Sack, 39 years old, is an economist who runs the markets group at the Federal Reserve Bank of New York. The group runs the Fed's trading, making it the bridge between the marble corridors of the Federal Reserve in Washington and the bustling trading floors of Wall Street.
In normal times, it buys and sells Treasury securities to influence the level of interest rates. During the crisis, it hatched a raft of complex new programs that inserted the central bank more deeply than ever into private markets -- purchasing mortgage-backed securities, extending commercial-paper loans to blue-chip companies and reviving asset-backed securities markets.
"The operational challenge of getting this job done is amazingly difficult," says Laurence Meyer, vice chairman of Macroeconomic Advisers, an economic consulting firm where Mr. Sack formerly worked.
The decision on when to soak up the money and to raise interest rates comes from the Federal Open Market Committee, which meets this Tuesday and Wednesday. It isn't expected to make a move at this meeting, but Mr. Sack's job is to implement its decision when it does.
"Nobody wants to be the guy who says [to other Fed officials], 'You can't do this because I've got operational constraints,'" says Dino Kos, a managing director at Portales Partners LLC who ran the market group from 2001 to 2006.
As always, Mr. Sack will lead off this week's FOMC meeting with an update on the market. He also will give an update on the programs he is developing to manage the central bank's reserves.
Brown-haired, blue-eyed and baby-faced, he was a rising star at the Fed earlier this decade before he left to join Macroeconomic Advisers, where he advised hedge funds and other investors on the outlook for Fed policy. He graduated from the University of Vermont and got an economics Ph.D. from the Massachusetts Institute of Technology. A Philadelphia native, he has been rooting for the Phillies in the World Series from his new New York home.
Eager to project both calm detachment and deliberate blandness, Mr. Sack appears cut from the mold of a mentor, Fed Chairman Ben Bernanke. He parses his words carefully, directing any personal attention to the group of 400 people he now oversees.
The center of life in the markets group is a glass-enclosed conference room situated next to a small cluster of trading desks on the ninth floor of the New York Fed. It overflows with people for a daily 9:20 a.m. meeting run by Mr. Sack. A few stray pictures of Alan Greenspan, the former Fed chairman, still hang on pillars nearby.
In 2004, while serving as a Fed staff economist in Washington, Mr. Sack co-authored a paper with Mr. Bernanke, then a Fed governor, on what the Fed should do if the economy sank into deflation. At the Fed's annual retreat in Jackson Hole, Wyo., in August, Mr. Sack and Mr. Bernanke sat near each other and shared whispered comments as other economists discussed Fed policy. Mr. Bernanke considered recruiting him to Princeton when he ran the school's economics program.
Mr. Sack rejoined the Fed in June to succeed Bill Dudley as head of the markets group after Mr. Dudley became president of the New York Fed.
The markets group grew enormously during the crisis, from about 225 employees to 400 people who monitor the markets for the Fed, manage its portfolio and run the many new trading programs it has started. The Fed holds more than 20,000 individual securities.
A decision to tighten monetary policy could still be months away. And officials aren't yet sure how big the money-draining operations will need to be. In the meantime, Mr. Sack's desk is developing several contingency plans.
Under one program called "reverse repos," the Fed will put a large and growing portfolio of Treasury bonds, mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac into the market as collateral for loans, taking in cash in return.
In essence, it will switch the Fed from being a massive lender to being a massive borrower, draining the system of cash in the process.
"I am confident that we will be able to drain large amounts of reserves if needed," he said in an interview early last week.
The Fed has been testing out its ability to operate such a program, which has made the market jumpy. Some investors worry that the tests are a signal that interest-rate increases are approaching. In a statement earlier this month, the New York Fed reassured investors it was still in a testing stage. The tightening signal is most likely to come from Mr. Bernanke and the FOMC, not the markets group.
Mr. Sack and the market group play an increasingly important role advising the FOMC on the complex programs that were set up during the crisis and how to unwind them. At last month's FOMC meeting, for instance, an intense debate about the future of the Fed's mortgage-backed securities purchases was led off with a presentation by Mr. Sack, who advocated gradually tapering off the program.
The markets group and the FOMC are still sorting out many issues about how to pull reserves from the financial system. One is who should be on the other side of the market group's reverse-repo trading. The Fed traditionally trades with 18 securities firms called primary dealers. But officials aren't sure that these dealers have the capacity to funnel potentially hundreds of billions of dollars of operations through the market.
The central bank is casting its net more widely. It could conduct operations with Fannie Mae and Freddie Mac, money-market funds, or even corporations, hedge funds or securities lenders like State Street Global Advisers and Northern Trust.
"We're exploring a range of possibilities for counterparties," Mr. Sack said.
Mr. Sack, 39 years old, is an economist who runs the markets group at the Federal Reserve Bank of New York. The group runs the Fed's trading, making it the bridge between the marble corridors of the Federal Reserve in Washington and the bustling trading floors of Wall Street.
In normal times, it buys and sells Treasury securities to influence the level of interest rates. During the crisis, it hatched a raft of complex new programs that inserted the central bank more deeply than ever into private markets -- purchasing mortgage-backed securities, extending commercial-paper loans to blue-chip companies and reviving asset-backed securities markets.
"The operational challenge of getting this job done is amazingly difficult," says Laurence Meyer, vice chairman of Macroeconomic Advisers, an economic consulting firm where Mr. Sack formerly worked.
The decision on when to soak up the money and to raise interest rates comes from the Federal Open Market Committee, which meets this Tuesday and Wednesday. It isn't expected to make a move at this meeting, but Mr. Sack's job is to implement its decision when it does.
"Nobody wants to be the guy who says [to other Fed officials], 'You can't do this because I've got operational constraints,'" says Dino Kos, a managing director at Portales Partners LLC who ran the market group from 2001 to 2006.
As always, Mr. Sack will lead off this week's FOMC meeting with an update on the market. He also will give an update on the programs he is developing to manage the central bank's reserves.
Brown-haired, blue-eyed and baby-faced, he was a rising star at the Fed earlier this decade before he left to join Macroeconomic Advisers, where he advised hedge funds and other investors on the outlook for Fed policy. He graduated from the University of Vermont and got an economics Ph.D. from the Massachusetts Institute of Technology. A Philadelphia native, he has been rooting for the Phillies in the World Series from his new New York home.
Eager to project both calm detachment and deliberate blandness, Mr. Sack appears cut from the mold of a mentor, Fed Chairman Ben Bernanke. He parses his words carefully, directing any personal attention to the group of 400 people he now oversees.
The center of life in the markets group is a glass-enclosed conference room situated next to a small cluster of trading desks on the ninth floor of the New York Fed. It overflows with people for a daily 9:20 a.m. meeting run by Mr. Sack. A few stray pictures of Alan Greenspan, the former Fed chairman, still hang on pillars nearby.
In 2004, while serving as a Fed staff economist in Washington, Mr. Sack co-authored a paper with Mr. Bernanke, then a Fed governor, on what the Fed should do if the economy sank into deflation. At the Fed's annual retreat in Jackson Hole, Wyo., in August, Mr. Sack and Mr. Bernanke sat near each other and shared whispered comments as other economists discussed Fed policy. Mr. Bernanke considered recruiting him to Princeton when he ran the school's economics program.
Mr. Sack rejoined the Fed in June to succeed Bill Dudley as head of the markets group after Mr. Dudley became president of the New York Fed.
The markets group grew enormously during the crisis, from about 225 employees to 400 people who monitor the markets for the Fed, manage its portfolio and run the many new trading programs it has started. The Fed holds more than 20,000 individual securities.
A decision to tighten monetary policy could still be months away. And officials aren't yet sure how big the money-draining operations will need to be. In the meantime, Mr. Sack's desk is developing several contingency plans.
Under one program called "reverse repos," the Fed will put a large and growing portfolio of Treasury bonds, mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac into the market as collateral for loans, taking in cash in return.
In essence, it will switch the Fed from being a massive lender to being a massive borrower, draining the system of cash in the process.
"I am confident that we will be able to drain large amounts of reserves if needed," he said in an interview early last week.
The Fed has been testing out its ability to operate such a program, which has made the market jumpy. Some investors worry that the tests are a signal that interest-rate increases are approaching. In a statement earlier this month, the New York Fed reassured investors it was still in a testing stage. The tightening signal is most likely to come from Mr. Bernanke and the FOMC, not the markets group.
Mr. Sack and the market group play an increasingly important role advising the FOMC on the complex programs that were set up during the crisis and how to unwind them. At last month's FOMC meeting, for instance, an intense debate about the future of the Fed's mortgage-backed securities purchases was led off with a presentation by Mr. Sack, who advocated gradually tapering off the program.
The markets group and the FOMC are still sorting out many issues about how to pull reserves from the financial system. One is who should be on the other side of the market group's reverse-repo trading. The Fed traditionally trades with 18 securities firms called primary dealers. But officials aren't sure that these dealers have the capacity to funnel potentially hundreds of billions of dollars of operations through the market.
The central bank is casting its net more widely. It could conduct operations with Fannie Mae and Freddie Mac, money-market funds, or even corporations, hedge funds or securities lenders like State Street Global Advisers and Northern Trust.
"We're exploring a range of possibilities for counterparties," Mr. Sack said.
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