The question of how far the Reserve Bank of Australia is willing to go to remove groupthink from its ranks will be answered in the coming weeks as Treasurer Jim Chalmers moves to appoint a new deputy governor.
Central to that debate is whether he promotes an official already at the RBA or opts for an outsider. Market chatter about potential candidates includes Chris Kent, the current assistant governor overseeing the operation of financial markets, and Justin Wolfers, an economist and academic who teaches at the University of Michigan.
A recent independent review of the RBA called for radical change of its culture after critics claimed there was a lack of debate and inclusion around policy decisions, while senior staff spent little time seeking the opinions of outsiders.
Chalmers has said he wants to “renovate” the RBA after decades of stagnation in the ways it operates, and filling the deputy’s post, which brings with it a seat on the interest-rate setting board, is the next step.
It could also be his best chance to really shake up the place.
But so far, Chalmers has been cautious.
In September, he put RBA lifer Michele Bullock in charge of the RBA. While widely welcomed by financial markets, elevating her to governor hardly smacked of a revolution for the central bank.
The deputy post is critical. Aside from shaping policy decisions, they work to sell its evolving policy narrative of the RBA through public speeches and are central to its administration.
RBA deputy governors are often groomed to be the next governor, so Chalmers must make the best decision.
But there’s a significant problem.
The list of eligible candidates that usually emerges in the media ahead of time is lacking.
To be sure, it is very nearly barren.
Internally at the RBA, the leading candidate is Chris Kent, who has a doctorate from the Massachusetts Institute of Technology, something which has fast-tracked the careers of other leading lights within the RBA, and he was the bank’s chief economist for a period of four years ending in 2016.
But if Chalmers truly wants to shake up the institution and put his mark on the RBA, he may well be tempted to pass over Kent and look outside its walls. There’s some chatter in markets that Chalmers wants to appoint a high-flying Australian working internationally.
“There’s no other choice for Chalmers but to look outside. Otherwise, he can’t credibly claim he is reforming the institution,” one senior investment manager said.
A name that keeps coming up in discussion is Justin Wolfers, who is a visiting professor of economics at the University of Sydney, in addition to his position as a lecturer at the University of Michigan.
Wolfers is also a research associate with the National Bureau of Economic Research and a nonresident senior fellow with the Brookings Institution, which makes him a heavy hitter in terms of influencing the discussion around the US economy. He is also a former RBA staff member.
With a doctorate from Harvard and a medal from Sydney University, Wolfers has the pedigree and clout sufficient to get him invited to a recent state dinner at the White House for Australian Prime Minister Anthony Albanese.
“Wolfers was a shooting star when he was at the RBA. He’s very passionate. It would be a real coup for Chalmers if he got him,” a senior economist who previously worked at the RBA said.
Wolfers did not respond to requests for a comment.
While there would be a question around his ability to lead change in a large organisation like the RBA, Wolfers would tick many boxes for Chalmers who clearly wants to make a statement.
Wolfers has a significant media profile in the US and is said to be close to identities such as US Treasury Secretary Janet Yellen and Larry Summers, so he’d bring an excellent understanding of the world’s biggest economy and connection to the key players running it.
Still, an external appointment such as Wolfers might see some of the emerging talent within the RBA depart for the private sector, adding to a recent exodus that has included former deputy governor Guy Debelle and former chief economist Luci Ellis in the last two years.
“It would be interesting to see who leaves,” one senior economist said.
james.glynn@wsj.com; @JamesGlynnWSJ
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