Fischer Seen Bringing Crisis-Fighting Skills to No. 2 Fed PostJoshua Zumbrun and Rich Miller
Stanley Fischer, said to be the leading candidate for the No. 2 job at the Federal Reserve, offers crisis-fighting experience and a dose of skepticism about efforts to shape expectations on the outlook for interest rates.
The former Bank of Israel governor, though a newcomer to the Fed, also brings continuity and strong academic credentials: as a professor of economics at Massachusetts Institute of Technology, he taught Fed Chairman Ben S. Bernanke, whose term ends in January, and European Central Bank chief Mario Draghi.
Fischer, 70, is President Barack Obama’s top choice to succeed Fed Vice Chairman Janet Yellen, who has been nominated to replace Bernanke, according to people familiar with the selection process. Obama has already offered the job to Fischer, who accepted it, said one of the people. The decision was made jointly by the president and Yellen, who is awaiting Senate confirmation as Fed chairman, the person said.
“It’s almost like a central bank hall of fame,” said Robert Hall, professor of economics at Stanford University, and chairman of the National Bureau of Economic Research’s committee that decides when expansions begin and end. “They have a huge track record as central bankers.”
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.
If confirmed by the Senate, Fischer would assume the vice chairmanship of a central bank struggling to convince investors that policy will remain easy even after it winds down its quantitative easing program. Policy makers will probably start tapering bond purchases at their next meeting Dec. 17-18, according to 34 percent of economists surveyed by Bloomberg on Dec. 6. Forty percent of 35 economists predicted a move in March.
Asked in an Oct. 11 Bloomberg Television interview when the Fed should begin tapering $85 billion in monthly bond buying, Fischer said, “there is an efficient way to do it, which is to start doing it pretty soon and to do it gradually.”
“It would be good to start,” Fischer said.
The central bank has said it will hold its short-term interest rate low at least until unemployment reaches 6.5 percent, and indicated it doesn’t expect to raise rates until 2015. Those forecasts didn’t stop 10-year Treasury yields from rising by more than a percentage point from May to September after Fed officials started to talk about reducing bond buying.
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.”
He added: “In any case, the Fed adopted a forward guidance policy and, until now, it has succeeded with it.”
“He is against too-clear, too-committed forward guidance,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former Fed economist. “I don’t infer necessarily from what he said that he would try to undo the current forward guidance the Fed has in place. He would probably be against being even more specific.”
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.
“He acted very aggressively off the bat when the crisis began to take hold,” said Drew Matus, senior economist at UBS Securities LLC in Stamford, Connecticut, and a former analyst at the New York Fed. “He seems to be quite decisive.”
Fischer’s resume also includes service at the International Monetary Fund and World Bank and a stint as vice chairman of New York-based Citigroup Inc.
That track record fighting financial fires would fill a gap for Yellen, 67, who was serving as president of the San Francisco Fed during the 2007-2009 meltdown, rather than on the Board of Governors in Washington.
Fischer “has been involved in managing global financial crises since the Mexican crisis in the ’90s,” said Edwin Truman, a former Fed official who is now at the Peterson Institute for International Economics in Washington.
Among Fischer’s innovations at the Bank of Israel was to shift responsibility for the monthly interest-rate decision from the governor alone to a six-member committee, including three outside academics. He employed a Fed-style dual focus on employment and growth alongside price stability, where previous governors placed an emphasis on inflation.
“My impression is that Janet and Stan have broadly similar views about monetary policy,” said Andrew Levin, a former adviser to Yellen at the Fed who is now a research fellow at the IMF. “I can imagine that she would find it tremendously valuable to consult with him.”
Fischer’s views could prove influential at the Fed, where the three top staff economists received their doctorates from MIT while Fischer taught there.
Those division directors, sometimes known as the barons, are William English at monetary affairs, David Wilcox of the research and statistics division, and Steven Kamin at international affairs.
At MIT, Fischer oversaw Bernanke’s thesis and also taught the ECB’s Draghi. Fischer credited each with helping to rescue the world economy and said in a June 13 interview with Bloomberg News in London that future students will study their policies.
He’s also a familiar figure at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming. This year, he and Yellen moderated sessions there.
“Fischer is held in extremely high esteem throughout the global policy community,” said Kenneth Rogoff, an economist at Harvard University and co-author of the book “This Time Is Different: Eight Centuries of Financial Folly.”
Fischer wouldn’t be the first central bank official to change countries. Bank of England Governor Mark Carney was governor of the Bank of Canada from 2008 until last June.
From 1988 to 1990, Fischer was chief economist at the World Bank. After returning to teaching at MIT, Fischer joined the IMF 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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