Jan 10 Stanley Fischer, President Barack Obama's
pick to be vice chairman at the Federal Reserve, is a pragmatic
policymaker who battled economic crises in Mexico and Asia and
steered Israel's economy safely out of the 2008 global financial
He also grew up in a house with no running water, behind the
general store his immigrant parents ran in present-day Zambia.
Confirmation by the U.S. Senate would propel Fischer, 70, to the
No. 2 spot at the world's most powerful central bank.
In this new role, the former head of the Bank of Israel and
the International Monetary Fund's chief firefighter during the
Asian financial crisis would face a fresh challenge: helping
incoming Fed chief Janet Yellen manage the wind-down of the
central bank's bond buying without sabotaging the U.S. recovery.
Yellen, who won Senate confirmation on Monday to be the next
Fed chair, is set to take the reins from Ben Bernanke once his
term ends on Jan. 31.
On Friday, Obama nominated Fischer to replace Yellen and
nominated Lael Brainard, who recently served as the Treasury
Department's top official for international affairs, to serve on
the Fed board. The president also nominated Fed Governor Jerome
Powell to a new term on the board.
Fischer, who has both U.S. and Israeli citizenship, spent
eight years running the Bank of Israel, retiring three years
into his second five-year term in June. He was the
second-in-command at the IMF from 1994-2001, and before that
chief economist at the World Bank.
He taught economics at the Massachusetts Institute of
Technology for many years, where his students included Bernanke,
European Central Bank President Mario Draghi, and at least half
a dozen other well-known economists and policymakers including
former Obama adviser Lawrence Summers and Gregory Mankiw, who
served as an adviser to President George W. Bush.
"The guy has got a lot of seniority, a tremendous amount of
international experience," said Jerry Webman, chief economist at
OppenheimerFunds in New York. "Bringing in the international
component ... acknowledges there's a feedback effect with
monetary policy, currency (and) foreign monetary policy."
Fischer's recent and influential role in a foreign
government could raise some eyebrows among the U.S. senators who
would need to confirm him before he can take office.
So too could his time in the private sector. He was a vice
chairman at Citigroup in the mid-2000s when it was the biggest
bank in the world. During the financial crisis, Citi was among
the institutions that received a U.S. government bailout.
SEES IT, CALLS IT
Often described as mild-mannered and genial, Fischer can
also be prickly and forthright.
Last June, after then-Israeli Finance Minister Yuval
Steinitz announced a plan to double Israel's budget deficit
target to 3 percent, Fischer warned the move could weaken the
economy and force the central bank to raise interest rates.
"The last time this happened, we had to run to our rich
uncle for guarantees," he chided, referring to U.S. loan
guarantees extended to recession-hit Israel in 2003. "But there
is a problem with our rich uncle today: He's not so rich and not
At the Bank of Israel, Fischer's rate decisions often
surprised markets, and sometimes went against the advice of his
top officials. His decision in November 2008 to cut the policy
rate by half a percentage point, for instance, had the support
of only one of the five senior officials who consulted with him
on the move.
"He calls it as he sees it," said Bill Rhodes, former senior
vice chairman at Citigroup who worked closely with Fischer when
he was at the IMF. "And like everyone else, sometimes he's
wrong, but his policies have worked out very well in that
eight-year period at the Bank of Israel."
Fischer was born in what was then Northern Rhodesia, the son
of Latvian and Lithuanian Jewish immigrants. When he was 13, his
family moved to what is now Zimbabwe. In his last year of high
school, he took a course in economics that hooked him for life.
He went on to study at the London School of Economics and
then MIT, where he later became a professor. It was there, in
1977, that he famously argued that monetary policy can
effectively boost employment, a hotly contested notion which is
still controversial in some circles.
A two-and-a-half-year stint as chief economist at the World
Bank whetted his appetite for policy work, and when he returned
to MIT, he found it hard to re-adjust to academia.
"I remember going to theory seminars and saying to myself,
what difference does it make whether this guy is right or wrong,
why should anyone care about that theorem and so forth," he told
Olivier Blanchard, a former student and now the IMF's chief
economist, in a 2004 interview.
In 1994, Fischer got his chance to return to policymaking:
Summers, who was then a top U.S. Treasury official, helped
recruit him to be deputy managing director at the IMF.
Fischer played a big role in the IMF's bailout of Mexico
after the peso crashed in 1994, and he helped to arrange huge
IMF loan packages for South Korea, Thailand, Indonesia and
Russia during the Asian financial crisis that began in 1997.
His IMF term ended in 2001, and after a failed bid to lead
the IMF, he became vice chairman at Citigroup.
In December 2005, while celebrating his wedding anniversary
in the Caribbean, Fischer got a call: would he consider running
the Bank of Israel, then-Finance Minister Benjamin Netanyahu
Fischer jumped at the chance to return to the policy world.
Two years into the job, the financial crisis hit, and he
responded by cutting the policy rate on Oct. 7, 2008, a day
ahead of similar moves by major central banks.
He was also the first central banker to raise rates, in
2009, after the worst of the crisis had passed for Israel.
In 2011, he established a six-person monetary policy
committee that would vote on rate decisions that had before then
been entirely his call.
But he continued his policy of doing what he thought best
until the very end. Last May, at his next-to-last policy-setting
meeting, Fischer used his double-vote to break a tie, opting for
a smaller cut than half the panel members had wanted.
Israel's economy has fared better than many since the
crisis, in part because the Bank of Israel bought billions of
dollars to keep Israel's shekel currency from strengthening too
much when the Fed launched its second round of bond purchases to
push U.S. borrowing costs down. That program spurred investors
to pour money into emerging economies, driving many of those
currencies sharply higher.
But unlike officials in many other emerging economies,
Fischer did not chastise the Fed for its super-easy policy; in
fact, he called criticism of the U.S. policy "misplaced."
More recently, Fischer has offered mixed assessments of the
Fed's bond-buying, calling it ugly and dangerous, but also
effective and necessary.
"We really need to get back to more normal conditions, more
normal monetary policy in the United States," he said in August.
The Fed took its first step in that direction when it
decided in December to reduce its monthly assets purchases to
$75 billion from $85 billion, with a view to ending them
sometime late in 2014.
Fischer also appears to have conflicting views on the other
main tool the Fed is using to influence the economy these days -
so-called forward guidance on how long it will keep interest
rates at their current near-zero level.
"You can't expect the Fed to spell out what it's going to
do," he said earlier this year, "because it doesn't know."