The appointment comes with the Fed in the middle of some key operations in carrying out its mandate of keeping the economy at full employment and stabilizing inflation.
Since December 2015, the policymaking Federal Open Market Committee has raised interest rates six times, with the funds benchmark now targeted at 1.5 percent to 1.75 percent. Markets expect at least two more rate hikes before the year ends.
In addition, the Fed is in the process of unwinding its portfolio of mortgage and Treasury bonds that had pushed its balance sheet above $4.5 trillion at one point. As head of the New York Fed, Williams will oversee the mechanics of both endeavors.
Williams took over as San Francisco president from Janet Yellen, who ultimately became the Fed chair before leaving in February.
"I very much valued his advice and insight as I advocated during Federal Open Market Committee (FOMC) deliberations for a decisive and forceful response to the 2007-2009 financial crisis and recession," Yellen said in a statement released through the Brookings Institution, where she is a distinguished fellow in residence.
"John cares deeply and is committed to the dual mandate and has led extensive work on the U.S. labor markets and employment," added Sara Horowitz, founder of the Freelancers Union, chair of the New York Fed's board of directors and co-chair of the search committee. "John has always been willing to speak his mind and encourage the Fed to be forward looking and reflective."
The statement announcing Williams' appointment made several references to diversity, an issue for which the Fed has come under fire recently. Since rumors of his appointment circulated, critics have faulted the central bank for failing to broaden the makeup of its leaders.
Fed Up, a group of economists and former Fed officials, and other organizations have been critical of the selection process as well as the approach the central bank has taken to policy-making.
"The NY Fed should go back to the drawing board and draw from the deep, diverse, and highly qualified list of candidates provided to it by the Fed Up coalition (as well as surveying the views of other public interest groups)," the Economic Policy Institute's Josh Bivens said in a recent statement. "This is too important a decision to make on institutional autopilot."
Williams also has come under criticism because the fake accounts scandal at San Francisco-based Wells Fargo happened on his watch. Sen. Elizabeth Warren, who has been especially critical of how the Fed handled the Wells Fargo matter, had said she wanted to have Williams sit for a congressional grilling before his appointment was finalized.
For his part, Williams said he is excited about taking on the challenge of running the New York Fed.
"I look forward to joining the talented team of New York Fed colleagues and to carrying out the unique responsibilities entrusted to us to protect the economic prosperity and financial stability of the United States' economy," he added in the statement.
— With reporting by CNBC's Steve Liesman.