My friend and former colleague Steve Liddy sent me this article which chronicles the increasing influence of the Vice Chairman at the Fed.
2015-05-31 23:05:09.433 GMTBy Rich Miller
(Bloomberg) –To hear Wall Street pros tell it, Stanley
Fischer hasn’t lived up to his reputation as an economic
heavyweight in his first year at the Federal Reserve. Don’t
Away from the public spotlight, the Fed vice chairman has
played a key role in fashioning policy, those in the know say.
He’s nudged the central bank away from providing explicit
guidance on its interest-rate intentions and elevated its
efforts to spot financial trouble spots in the U.S. and global
“He has moved the needle,” said International Monetary
Fund Chief Economist Olivier Blanchard, a long-time confidante
who speaks with Fischer frequently.
Indeed, as the Fed prepares to begin raising interest rates
for the first time in nine years, it’s taking the same
adjustable approach the 71-year-old Fischer pursued a decade ago
as head of Israel’s central bank. In the words of Chair Janet
Yellen, policy makers “could speed up, slow down, pause or even
reverse course” depending on the outlook.
In an e-mail, Yellen called Fischer a “good friend,” and
said she relies on his “wise insights” in mapping out policy.
The two meet at least once a week for free-wheeling discussions
on the economy and other issues facing the central bank.
The picture insiders paint of Fischer as trusted adviser to
Yellen contrasts with the public perception of his influence.
Fed watchers generally don’t view his utterances as providing a
lodestar on where rates are headed. And Wall Street executives
have voiced disappointment that he hasn’t done anything to curb
the regulatory zeal of powerful Fed Governor Daniel Tarullo.
Fischer’s defenders say such criticism misses the point.
His job is to be “one of the steady hands on the tiller during
a time of great uncertainty” for the economy, not to act as a
foil to Tarullo or Yellen, said Timothy Adams, president of the
Washington-based Institute of International Finance, which
represents close to 500 global financial institutions.
The one-time IMF official also brings a wealth of
international experience and contacts to the Fed at a time when
the U.S. seems more susceptible to forces from abroad. Fischer
represented the central bank last week at a meeting in Dresden,
Germany, of policy makers from major industrial nations.
“He’s a dean of global monetary policy, a person with a
very high international reputation,” former Fed Chairman Ben S.
Bernanke said in an interview. “That helps the Fed and the U.S.
Fed officials have their work cut out for them. They must
unwind a record-loose monetary policy that has pushed up prices
of stocks, real estate and even art significantly without having
nearly the same impact on an economy still suffering the after-
effects of the 2007-09 recession.
“They’re in a very difficult” position, said former
central bank Chairman Alan Greenspan. “There is no conceivable
scenario in which it is going to be easy.”
Fischer has said there’s a high probability he and his
counterparts on the Federal Open Market Committee will raise the
benchmark federal funds rate this year from near zero. He’s also
stressed that an increase or two merely would move the Fed from
ultra-expansionary policy to very expansionary.
In a rambling lecture at Israel’s IDC Herzliya university
on May 25, Fischer warned about the risk of waiting too long,
saying this could force the Fed to tighten credit sharply later
on to keep the economy from overheating.
‘Middle of Road’
While the one-time professor and IMF official seems more
inclined to act than some others at the Fed, he describes
himself as “middle of road” on the central bank’s two
mandates: neither an inflation-fighting hawk nor an employment-
Fischer and Yellen “are extremely close on how they see
the economy,” Blanchard said. “I don’t think they disagree a
priori on anything big.”
“They might have a discussion on whether it’s September or
December” to tighten policy, but “it’s an intellectual
discussion,” with neither wedded to a particular date.
Fischer came to the Fed with an impressive resume. As a
professor at the Massachusetts Institute of Technology in
Cambridge from the 1970s into the 1990s, he was a mentor to many
policy makers, including Bernanke and current European Central
Bank President Mario Draghi.
From 1994 to 2001, he served as No. 2 policy maker at the
IMF, helping to lead the battle against a series of financial
crises stretching from Thailand to Brazil.
Most recently, he headed the Bank of Israel from 2005 to
2013, where he earned a reputation as a trailblazer for being
the first central banker to cut rates in 2008 at the start of
the global crisis and the first to raise them the following year
on signs of recovery.
“The great virtue of what he went through at the IMF and
at the Bank of Israel was that he saw you’ve got to choose,”
said former U.S. Treasury Secretary Timothy Geithner, now
president of private-equity company Warburg Pincus LLC in New
York. “He has a record of making decisions and coming up with
novel solutions to complex problems that showed a level of
creativity, a willingness to take risks.”
Fischer said in an interview he’s “beginning to feel quite
at home at the Fed” after spending the last year coming to
grips with a central bank and financial-regulatory system that
are bigger and more complex than Israel’s. Confidantes say he’s
also had to get used to the Fed’s far more formal atmosphere.
Off the Cuff
He has a looser style than many policy makers and isn’t
afraid of ad-libbing in public. Within the FOMC, he speaks off
the cuff rather than reading from a statement like some of his
His openness has sometimes gotten him into trouble. At a
public board meeting in December, he apparently revealed
inadvertently that JPMorgan Chase & Co. was the only big bank
that failed to meet new U.S. capital requirements and would have
to come up with more than $20 billion by 2019 to comply.
When Fischer arrived at the U.S. central bank, he had some
misgivings about its strategy of providing investors with
explicit guidance on the probable path of policy, arguing the
future was too uncertain to make such commitments.
Now, as the Fed lays the groundwork for changing its
benchmark, it’s adopted a data-driven, meeting-by-meeting
approach more to Fischer’s liking.
Mohamed El-Erian, who worked with Fischer at the IMF and is
now a Bloomberg View columnist, said he wouldn’t be surprised if
the vice chairman had a hand in the Fed’s increased awareness of
the impact foreign influences have on the U.S. In January, the
FOMC began singling out “international developments” in its
policy statement as one consideration in deciding when to raise
“I think increasingly what’s happening in the outside
world — the non-U.S. world — is affecting us,” Fischer said.
“We’ve seen that more in recent months than we have in a long
The Fed vice chairman also has heightened the central
bank’s attention to financial stability, heading a committee
created at his behest to look across the spectrum for signs of
trouble and plot ways to address difficulties that might arise.
A current preoccupation: The recent volatility in the bond
market that saw the yield on 10-year Treasury notes rise to 2.29
percent on May 13 from 1.87 percent on April 17.
“My big fear as a regulator — actually about life in
general — is that I’ll be very focused on some problem and
there’s another problem coming from some other direction that
nobody’s noticed and, bang, it arrives. And then you aren’t
ready,” he said. “What I really want is for us to be as ready
as possible to deal with any problems that might come up.”