BUSINESS

FOR NO. 2 AT FED, WHITE HOUSE FAVORS CENTRAL BANKER IN BERNANKE MOLD

Staff Writer
Columbus CEO

c.2013 New York Times News Service

WASHINGTON — Stanley Fischer, the former governor of the Bank of Israel and a mentor to the Federal Reserve’s chairman, Ben S. Bernanke, is the leading candidate to become vice chairman of the Fed, according to former and current administration officials.

If nominated, and then confirmed by the Senate, Fischer, 70, would succeed Janet L. Yellen, whom President Barack Obama nominated to succeed Bernanke as the Fed’s leader when his term ends in January.

Fischer is at once a surprising choice and a popular pick among economists and investors. He is a highly regarded economist with significant policy making experience, yet many had considered his selection improbable because of his recent service in a foreign government. News about Fischer’s possible nomination was reported on Israeli television.

That experience could become a concern if he is nominated, as could his experience at Citigroup, where he was vice chairman between 2002 and 2005. The company’s expansion during that period eventually ended in a federal bailout.

As the Fed’s vice chairman, Fischer would most likely exert a moderating influence on Yellen, echoing, in a way, her intellectual partnership with Bernanke. Yellen is a forceful advocate for the Fed’s efforts to stimulate the economy and reduce unemployment. Fischer has been generally supportive of those efforts but has raised questions about the particulars.

He offered measured support at a conference last month for the Fed’s bond-buying campaign, describing it as “dangerous” but “necessary.” At the same time, he has expressed greater skepticism about the companion effort to hold down borrowing costs by declaring that short-term interest rates will remain low, describing such forward guidance as potentially confusing.

“You can’t expect the Fed to spell out what it’s going to do. Why? Because it doesn’t know,” he said at a conference in September, according to The Wall Street Journal. “It’s a mistake to try and get too precise.”

Fischer’s experience on Wall Street, while potentially a political liability, could prove valuable for the Fed, which lacks officials with experience in the financial markets that it must manage and regulate.

Fischer “has unrivaled international expertise and is a seasoned crisis-manager — complementing Yellen, who has much less experience in these areas,” Krishna Guha, head of central bank strategy at the financial services firm International Strategy and Investment, wrote in a client note.

Fischer stepped down in June after eight years as the leader of Israel’s central bank. He drew wide praise for helping to shelter the Israeli economy from the global financial crisis, in part by moving quickly to cut interest rates.

The Israeli economy grew during each of Fischer’s eight years as the bank’s governor, even as most developed economies collapsed into deep recessions. When Israel’s strength attracted a surge of foreign investment, Fischer was again quick to respond, building up foreign reserves to limit the rise of the shekel and protect Israeli exporters.

He also shepherded passage of a law that limited his own power by creating a six-person committee to manage monetary policy.

Fischer may be better known for the students he taught as a professor of economics at Massachusetts Institute of Technology beginning in the late 1970s. In addition to Bernanke, the list includes Mario Draghi, the president of the European Central Bank; N. Gregory Mankiw, chairman of the Council of Economic Advisers under President George W. Bush; and Olivier Blanchard, chief economist at the International Monetary Fund.

Students say Fischer was a formative influence who inculcated the pragmatic view that government had some power to improve economic outcomes — a middle ground between the academic orthodoxies of the era.

He was a pioneering figure in the effort to formalize this middle ground, helping to forge the approach now known as New Keynesianism. He then set an example for his students by entering public service in the late 1980s, working first at the World Bank and then at the IMF before joining Citigroup.

Bernanke cited Fischer as one of his most important mentors last month, saying that he “demonstrated that he lived what he taught.”

Fischer was born in what is today Zambia. He came to the United States as a graduate student and became a U.S. citizen in 1976. When he became governor of the Bank of Israel, he also accepted Israeli citizenship.

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Fischer has the self-deprecating manner of many central bankers but is funnier than many of his peers. In an interview with The Washington Post, he described his first encounter with one of the seminal works of economics, “The General Theory of Employment, Interest and Money,” by John Maynard Keynes.

“I was immensely impressed,” he said, “not because I understood it but by the quality of the English.”

In selecting Fischer, the White House would continue a recent pattern of reinforcing the Fed’s existing direction.

The White House did not comment on Fischer’s possible nomination.

Obama had the unusual opportunity to replace as many as five of the seven members of the Fed’s board of governors next year. Instead, he plans to replace only those who insisted on departing, retaining Yellen and Jerome H. Powell, a Republican financier.

Lael Brainard, formerly the Treasury undersecretary for international affairs, is a front-runner to fill one of the remaining vacancies, according to people familiar with the matter.