Jan. 10 (Bloomberg) -- Stanley Fischer, former head of the Bank of Israel, will be nominated to serve as vice chairman of the Federal Reserve, the Obama administration said.
Fischer, 70, would replace Janet Yellen, who was approved by the Senate this week for the chairmanship of the U.S. central bank. Lael Brainard, formerly the U.S. Treasury Department’s top international official, will fill an empty seat on the board, and Jerome Powell is being nominated for a second term, according to a statement today from the White House.
Obama is reshaping the Fed board as the central bank tackles some of the biggest challenges in its 100-year history. The Fed’s balance sheet stands at $4.03 trillion as it buys longer-term debt to keep interest rates low to encourage consumer spending and capital investment. The Fed took the first step to slow the program down in December, trimming purchases to $75 billion a month from $85 billion.
Fischer “is widely acknowledged as one of the world’s leading and most experienced economic policy minds, and I’m grateful he has agreed to take on this new role,” Obama said in the statement. “I am confident that he and Janet Yellen will make a great team.”
Yellen will replace Ben S. Bernanke, whose term expires Jan. 31, as chairman.
The central bank is keeping a close watch on labor markets, where the recovery in employment is “far from complete,” Bernanke said last month.
Payrolls increased in December at the slowest pace in almost three years. The 74,000 gain followed a revised 241,000 advance the prior month, Labor Department figures showed today in Washington. The unemployment rate dropped to 6.7 percent, the lowest since October 2008, as more people left the labor force.
The Fed’s No. 2 has traditionally been the chairman’s most important ally on the board and is given a significant assignment.
Roger Ferguson, vice chairman from 1999 to 2006, helped guide the financial system through the year 2000 transition. Donald Kohn, now a senior fellow at the Brookings Institution in Washington, and Yellen both oversaw new communication initiatives, with Kohn also acting as Bernanke’s key adviser during the financial crisis.
Brainard, 51, has international experience that could serve the Fed well on the both the policy and regulatory fronts. At the Treasury, she goaded Europe to stimulate demand and help boost global growth.
Her contacts could help U.S. regulators figure out how to manage the resolution of the international operations of large U.S. banks. The Fed will also require foreign banking companies “with significant U.S. presence” to form bank holding companies in the U.S.
The nominations, which are subject to confirmation by the Senate, would fill three openings on the seven-member Fed board. Current board member Sarah Bloom Raskin has been nominated by Obama to be deputy Treasury secretary. The Senate hasn’t confirmed Raskin, and she remains at the Fed.
Fischer, who holds both U.S. and Israeli citizenship and lives in New York, stepped down as governor of the Bank of Israel on June 30, midway through his second five-year term. He was credited with helping his nation weather the global economic crisis better than most developed countries.
Powell, 60, has been on the Fed since May 2012, filling an unexpired term that ends Jan. 31. He previously was an undersecretary of Treasury in the administration of George H.W. Bush.
Fischer would take over a post that Yellen turned into a platform for promoting greater transparency, including goals for employment and inflation. He has voiced skepticism about using so-called forward guidance to signal the Fed’s policy intentions as much as two years in advance.
“In general, it is very hard for us to forecast developments at such ranges,” Fischer said in a speech to a conference of the Israel Economic Association in Tel Aviv in June. He said the Fed seems to deliver forecasts on unemployment and interest rates “in an attempt to affect actual events. However, in my opinion, the central bank must tell the truth that comes out of its models and estimations.”
Fischer is well known among the world’s central bankers: as a professor of economics at Massachusetts Institute of Technology, he taught Bernanke and European Central Bank chief Mario Draghi.
Fischer earned a reputation as a trailblazer as the first central banker to cut interest rates in 2008 at the start of the global crisis and the first to raise them the following year in response to signs of a financial recovery.
He also bought up foreign currency in unprecedented amounts to drive down the value of the shekel and boost exports, more than doubling reserves.
From 1988 to 1990, he was chief economist at the World Bank. After returning to teaching at MIT, Fischer joined the International Monetary Fund as deputy to Managing Director Michel Camdessus in 1994, working to resolve financial crises in Mexico, Russia and Southeast Asia. He left the IMF in 2001 and joined Citigroup as a vice chairman.
Born in 1943 in Zambia, then Northern Rhodesia, Fischer was a member of Habonim, a Zionist youth group, along with Rhoda Keet, his future wife. In the early 1960s, he spent six months on a kibbutz on Israel’s Mediterranean coastal plain, where he combined learning Hebrew with manual labor, picking and planting bananas.
In 2005, Fischer accepted Israel’s offer to head its central bank, and became an Israeli citizen, one of the job requirements.
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