December 11, 2013 7:53 pm

White House considers Fischer for number two role at the Fed

The White House is considering Stanley Fischer for vice-chair of the US Federal Reserve in a move that would add one of the world’s most respected economists to the central bank under new head Janet Yellen.

Mr Fischer, the former governor of the Bank of Israel, was a dark-horse candidate for Fed chair but he could now get the number two job, according to people familiar with the matter.

The selection of Mr Fischer would add a powerful voice to the Fed board to reinforce Ms Yellen, although it is not clear how strongly he would support her forward guidance policies for future interest rates.

In comments at a conference in September, Mr Fischer reportedly said it is a mistake to get too precise with forward guidance, because the central bank does not know how circumstances will evolve. “If you give too much forward guidance you do take away flexibility,” said Mr Fischer.

Ms Yellen is the architect of the Fed’s 6.5 per cent unemployment rate threshold, above which it does not expect to raise interest rates, and the central bank is considering ways to strengthen forward guidance even as it pulls back from, or tapers, its $85bn-a-month in asset purchases.

Mr Fischer, aged 70, is one of the best-known figures in international economic policy. As an academic at the Massachusetts Institute of Technology he mentored many of the world’s leading central bankers, including current Fed chairman Ben Bernanke, and Mario Draghi, the head of the European Central Bank.

He was chief economist of the World Bank from 1988 to 1990 and then held the powerful number two job at the International Monetary Fund from 1994 until 2001.

That put Mr Fischer on the front line of dealing with the Asian financial crisis in 1997. It means he could address one criticism some White House officials had of Ms Yellen before her selection as chair: that she had relatively little experience in crisis fighting.

As governor of the Bank of Israel from 2005 until this year, Mr Fischer cut interest rates aggressively in response to the financial crisis and intervened in the currency markets in order to stop the shekel from appreciating too far. Israel benefited from a solid financial system but has recorded one of the world’s stronger economic recoveries since 2009.

“I think he’d be brilliant. He’s the dean of the international economic and financial community,” said Tim Adams, president of the Institute of International Finance banking group. “I think it’d be a pretty formidable duo,” he said of Ms Yellen and Mr Fischer.

“He inclined to err on the side of monetary stimulus in case minority labour supply, contrary to self-fulfilling preconception, was there to meet it,” wrote Peter Doyle, a former IMF official, in an appreciation of Mr Fischer’s time at the Bank of Israel.

Mr Fischer was born in Zambia but has dual Israeli and US nationality. He tried to get the top job at the International Monetary Fund in 2011, indicating his desire to serve in another top policy role before retirement.

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