Obama picks Fischer for No. 2 spot at Fed

Stanley Fischer is the choice for the vice chairman role at the Federal Reserve Board, bringing an outsider to the No. 2 spot. The initial stories about his nomination were definitely positive with few organizations citing anything wrong with his record.

Bloomberg had this to say about the choice:

The former Bank of Israel governor, though a newcomer to the Fed, also brings continuity and strong academic credentials: as a professor of economics at Massachusetts Institute of Technology, he taught Fed Chairman Ben S. Bernanke, whose term ends in January, and European Central Bank chief Mario Draghi.

Fischer, 70, is President Barack Obama’s top choice to succeed Fed Vice Chairman Janet Yellen, who has been nominated to replace Bernanke, according to people familiar with the selection process. Obama has already offered the job to Fischer, who accepted it, said one of the people. The decision was made jointly by the president and Yellen, who is awaiting Senate confirmation as Fed chairman, the person said.

“It’s almost like a central bank hall of fame,” said Robert Hall, professor of economics at Stanford University, and chairman of the National Bureau of Economic Research’s committee that decides when expansions begin and end. “They have a huge track record as central bankers.”

The New York Times talked about Fischer’s ties to Wall Street and how they could be a liability as well as helpful in his new job:

Mr. 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 Mr. 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, Mr. Fischer would most likely exert a moderating influence on Ms. Yellen, echoing, in a way, her intellectual partnership with Mr. Bernanke. Ms. Yellen is a forceful advocate for the Fed’s efforts to stimulate the economy and reduce unemployment. Mr. 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.”

Mr. 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.

The Washington Post story listed four reasons that Fischer was a good choice for the job. Below is one:

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.

The Wall Street Journal story quoted Bernanke praising Fischer and then another former student with a differing opinion:

“Stan was my teacher in graduate school, and he has been both a role model and a frequent adviser ever since,” Mr. Bernanke said at a conference at the IMF honoring Mr. Fischer last month. “An expert on financial crises, Stan has written prolifically on the subject and has also served on the front lines.”

Not all Mr. Fischer’s former students were as effusive. One of them, Simon Johnson, a former chief economist at the IMF, raised questions about Mr. Fischer’s stance on financial regulation. “I don’t know what Fischer stands for on regulation. It’s a black box to me,” said Mr. Johnson, who has been critical about U.S. bank bailouts since the financial crisis. “What’s the rationale for this candidacy? I don’t get it.”

Mr. Fischer is generally seen among economists as a pragmatist who has been supportive of the Fed’s efforts to boost the economy after the crisis.

The vice chair role will be critical in upcoming policy decisions, especially around when to start pulling back from the Fed’s bond buying program. While Fischer may have tied to Wall Street and there may be questions surrounding his stance on regulation, he definitely has a variety of experience and deep financial knowledge.