Federal Reserve Vice Chair Stanley Fischer announced last week he was resigning for personal reasons before the end of his term, opening yet another seat in the central bank’s powerful board for President Donald Trump to fill.
The departure of Fischer, 73, represents a big loss of institutional knowledge and gravitas for the Fed at a time when many American institutions are sorely lacking in technocratic expertise. Fischer is considered the leader of a generation of prominent academic and professional economics, in part because he taught many of them at MIT.
“He is often referred to as the dean of central bankers, having taught most central bankers including former Fed Chairman Ben Bernanke and ECB president Mario Draghi,” wrote Shawn Baldwin, Chairman of AIA Group, in a LinkedIn post. “Fischer’s departure creates a vacuum not easily filled, adding to the uncertainty in monetary policy.”
Former Treasury Secretary and Harvard economist Larry Summers dubbed Fischer’s resignation “the end of an era.”
Fischer, who was born in Zambia and later studied in London, started his career as an academic, but then became a policymaker at the World Bank and later the International Monetary Fund, where he rose to the role of first deputy managing director. Fischer then spent three years at Citigroup as a vice chairman before moving to Israel in 2005 to become the head of its central bank. Fischer then returned to the United States as Fed Vice Chairman in 2014. His term was not set to end until June 2018.
“The Fed and the international monetary system will be weaker for his departure from official responsibility,” Summers wrote in a blog post.
“Stan’s has been a singular career,” he said. “As an MIT professor he coauthored, with his close friend Rudi Dornbusch, the macro textbook that defined the basics of the field for a generation. With [ex-IMF chief economist] Olivier Blanchard, he wrote the treatise that defined the state of the art for graduate students. His lectures were models of lucid exposition and balanced judgment. My view of monetary economics was shaped by my experience auditing his class in the Fall of 1978.”
The face of austerity
Not everyone is complimentary about the arch of Fischer’s career. To some, he represents the kind of establishment economics that led to financial instability and income inequality in many parts of the world.
During his time at the IMF, Fischer became the face of austerity measures gone wrong. Many of his and the Fund’s recommendations for drastic spending cuts during the Asian financial crisis of the late 1990s have since been widely discredited as having made matters worse.
“I see Fischer as to a large extent the embodiment of the conventional wisdom among macroeconomists and central bankers,” said Dean Baker, director of the Center for Economic and Policy Research, a liberal Washington think tank. “He also, in the pre-crisis days, was very much associated with the deregulation of finance gang, although I think he has developed an appreciation of the need for regulation since the crisis.”
Indeed, Fischer has spoken out rather strongly against efforts by Trump and Republicans to unwind most of the key regulations imposed on Wall Street after the crisis with the aim of preventing a repeat performance.
“We seem to have forgotten that we had a financial crisis, which was caused by behaviour in the banking and other parts of the financial system, and it did enormous damage to this economy,” Fischer told CNBC in April, just as the president was signing an executive order aimed at what he said was “reviewing” Dodd-Frank.
“Millions of people lost their jobs, millions of people lost their houses,” Fischer said. “This was not a small-time, regular recession. This was huge, and it affected the rest of the world, and it affected, to some extent, our standing in the world as well. We should not forget that.”
Baker says Fischer did a good job in Israel, where he managed the central bank from 2005 to 2013.
“He pushed down the value of the shekel, giving the country a large trade surplus, which allowed it to get through the Great Recession with little damage,” Baker said.
As for US monetary policy, his tenure did not include much action on the part of the Fed, but Fischer has been erroneously worried about the threat of looming inflation since the start of his tenure.
“At the Fed he has always voted with Yellen (governors almost always vote with the majority), but he did seem to be laying the groundwork for a path of faster rate hikes,” Baker said. “He also continued to worry about the threat of inflation even though there was zero evidence for it in the data. In this respect, he seemed to be trapped in the experiences of the 1970s.”