Four reasons Stan Fischer makes sense for the Fed

December 11, 2013

Stan Fischer with his onetime student, Ben Bernanke, in Jackson Hole, Wyo. (Ted S. Warren / Associated Press)

Note: This piece is adapted from an August post arguing that Stan Fischer was the most qualified nominee to become chairman of the Federal Reserve.

Multiple news outlets are reporting that the White House is close to nominating Stanley Fischer to be the next vice-chair of the Federal Reserve. He would replace the soon-to-be-promoted Janet Yellen in the No. 2 slot at the central bank.

Wonkblog readers will recall that we've been flogging the idea of bringing Fischer to the Fed for some time. Dylan Matthews wrote a long and definitive profile of the former  governor of the Bank of Israel and deputy managing director of the International Monetary Fund in February. So what might the White House (and Yellen, who would be consulted before such an appointment) see in Fischer? Here's what you need to know.

The short version: Whether you're looking for academic brilliance, crisis management or central banking experience, Fischer's record is sterling. He is deeply respected, even beloved, in the community of central bankers, an intellectual leader among the group of men and women who guide the world economy. In fact, he was a mentor to many of them. As it happens, he was thesis adviser to both current Fed chair Ben Bernanke and European Central Bank President Mario Draghi.

At the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo., this past August, where global central bankers gather each summer, Terrence Checki, the influential international chief for the New York Fed, at one point took a thoughtful question from Fischer. “I’ll just say that I would never presume to answer a question that Stan didn’t know the answer to,” Checki said.

So here's what Fischer's colleagues in the world of economics and central banking see as his appeal.

Brilliance, without the rough edges. Fischer was among the premier macroeconomists of his generation at MIT, before pivoting to a career in public service. He has a lot  in common, in that respect, with Larry Summers — also an academic who seemed on track to win a Nobel Prize one day who decided to shift to policymaking rather than research. But while Fischer and Summers share a brilliant mind for economics, their personal styles are very different.

Where Summers is seen, even by some of his supporters, as arrogant and bull-headed, Fischer is a legendary nice guy, deploying a wry smile and persuasive arguments to get his way. That could come in handy if he was in charge of the Fed, where decisions are made by committee

A crisis-management veteran. Fischer has faced trial by fire, most dramatically as the deputy managing director at the IMF from 1994 to 2001. He was on the front lines dealing with of a series of emerging market crises, including in Mexico, East Asia and Russia.

In other words, if there were to be a crisis in one or more of the emerging powers like China, India or Brazil, it would be the sort of thing that Fischer has spent his career preparing for. That is doubly important right now, as money has been gushing out of emerging economies in the past few months, driving their currencies down and their borrowing costs up. That has become all the more clear in the past few of months, as the threat of a wind-down of the Fed's easy-money policies has prompted volatility in emerging markets and shown how unstable the world financial system can be.

Some new blood for the Fed. The appointment of Yellen as chair of the Fed ensures continuity at the central bank. But if President Obama also wants to inject fresh thinking into the central bank, a Fischer appointment helps. He could help encourage a fundamental rethinking of how the nation’s central bank operates and its role in the economy and financial system.

As Ted Truman of the Peterson Institute for International Economics argued in a Financial Times op-ed, it may be time for a bigger rethinking. “The Fed needs to reestablish its unquestioned accountability and reputation for all-round competence as the protector of stability,” Truman argued. “This will require a leader who is an agent for change, not someone who was heavily involved in past decisions.”

If Obama agrees, Fischer would be a prime example of someone who is both amply qualified for the job and would bring fresh eyes to these challenges.

It’s worth noting that three of the jobs atop major industrialized nations’ central banks have opened up this year, in Japan, Britain and Canada. All three nations’ leaders chose outsiders, electing to pursue a path of change rather than promote from within. With an appointment of Fischer, Obama would be sending a message that he too wants a rethinking of how the Fed works.

Foreign, but not too foreign. The reason Fischer was not viewed as a front-runner for the Fed chairmanship is that he is viewed as a foreigner. He was born in Zambia and raised overseas before becoming a U.S. citizen in 1976. More politically tricky is that he was a high public official of another country for the past several years while serving as governor of the Bank of Israel.

But Fischer has been an American citizen for a generation and maintained his U.S. citizenship while serving overseas.  And the politics around Israel are unique. Would Republicans really lead a charge against confirmation for Bibi Netanyahu’s top economic adviser?

More substantively, while on national security measures the United States and Israel have a complicated relationship that would make cross-pollination hard to imagine -- don’t expect to see a former Mossad chief to be in the running to head the CIA -- economic policy really is different. It’s hard to imagine that loyalty to Israel could influence Fischer’s inclination to raise or lower U.S. interest rates.

Nor is it unknown for countries to recruit successful central bankers from their allies. Mark Carney, the new head of the Bank of England, previously led Canada's central bank -- a decision that garnered Britain wide applause in the monetary-policy community.

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Brad Plumer | December 11, 2013