It's a quietly voiced frustration among current and former central bankers that the candidate best qualified to lead the Federal Reserve isn't even being considered by the Obama administration.
The upcoming selection of a new chairman of the Federal Reserve is being cast as a three-way race, in the sense that President Obama mentioned exactly three names in discussing the choice with Congressional Democrats: Larry Summers, Janet Yellen and Donald Kohn. Beyond them, the dark-horse candidates include Roger Ferguson and Alan Blinder.
But if the choice was being made by the central bankers and academic economists who attended a closely-watched conference in Jackson Hole, Wyo. over the weekend, there would be another name very much in the mix—and quite possibly the front-runner.
His name is Stanley Fischer (Wonkblog completists might remember that Dylan Matthews profiled him earlier this year). The short version: He is an outstanding academic economist; he was the No. 2 official at the IMF; and he did a virtuoso job leading the Bank of Israel until earlier this year, making him the central banker to one of the nation’s closest allies. Whether you're looking for academic brilliance, crisis management or central banking experience, Fischer's resume 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. In the symposium Saturday, Fischer raised a typically thoughtful point about capital flows to emerging markets, posing a question to the panelists who had just presented a paper.
It fell to Terrence Checki, the influential international chief for the New York Fed, to take Fischer’s question. “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, based on conversations in Jackson Hole (alas, with people who decline to go on-the-record on such a sensitive matter) is the case for Fischer.
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 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 last few months, driving their currencies down and their borrowing costs up. That has become all the more clear in the last couple of months, as a sell-off in India’s currency and a gush of money out of a variety of emerging markets has shown how unstable the world financial system can be.
Some new blood for the Fed. If Obama thinks that the Fed is basically run as it should be now, Yellen or Kohn might be excellent choices. The current and former vice-chair have long histories with the institution, and would likely steer it effectively. They are less likely to do 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 re-establish 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 is 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 last 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 the U.K. wide applause in the monetary-policy community.
Update: The caption on the photo above originally suggested the photo was taken last week. It was from 2012.