Ahem! Stanley Fischer for the Fed?

Federal Reserve Board Governor Janet Yellen’s four-year term as Chair expires in February. The conventional wisdom is that, when it does, the president’s choice will be between reappointing her or preferring National Economic Adviser Gary Cohn, former president of Goldman, Sachs.

Which makes it interesting that Fed vice chair Stanley Fischer chose last week to have lunch with the Financial Times. He made headlines, too, on page 1, Thursday: “Fed policymaker blasts ‘dangerous’ bid to loosen restraints on banks” — two days before the feature story about the lunch ran in the FT’s Life and Arts section

Over truite meuniére and poulet de Cornouailles in Georgetown’s Bistro Lepic, Fischer told the FT’s Sam Fleming,

It took almost eighty years after 1930 to have another financial crisis that could have been of that magnitude.  And now after ten years everybody wants to go back to a status quo before the great financial crisis. And I find that really, extremely dangerous, and extremely short-sighted.

Intriguing, too, to find Fischer making strong pronouncements in one of the most widely-read venues in all of financial journalism. The Saturday Lunch with the FT is sufficiently beguiling to have warranted the collection in a book of 52 of the best expressions of the form.

In his news story, Fleming wrote:

Mr. Fischer criticized calls to ease up on stress testing, saying pressure to loosen standards on big banks was “very, very dangerous.” He argued that the US has yet to seal with the so-called shadow banking system, which operates outside mainstream lenders, calling this “a terrible mistake.

He decried attacks on global bodies such as the Financial Stability Board, which some Republicans says has been imposing burdensome regulations on the US, saying “I am worried  that the US political system may be taking us in a direction that is very dangerous.

You can’t really call Fischer, 73, a dark-horse candidate for chairman of the Fed.  In a rational world, he would be the leading candidate for the job, if Yellen chose not to serve a second term. A leading figure in academic monetary economics for twenty years until he left, in 1988, to become chief economist of the World Bank, Fischer has been a policy-maker ever since.

As First Managing Director of the International Monetary Fund from 1994 until 2001, Fischer helped quell the Asian and Russian financial crises. (See The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF, by Paul Blustein)

As Governor of the Central Bank of Israel, from 2005-13, he guided the Israeli economy through the global financial crisis with minimal turbulence. Fisher, who is Jewish and grew up in Northern Rhodesia (now Zambia), holds both US and Israeli citizenship.

Fischer stepped down from the Bank of Israel job halfway through his second term and returned to New York, to delicately enter the competition for the job as chair of the US Fed. After President Obama preferred vice chair Janet Yellen to Lawrence Summers, his former National Economic Adviser, Fischer agree to take the second chair, nominated to the Board of Governors and confirmed as vice-chair in June 2014, succeeding Yellen.

The interview Fischer gave the FT was of a piece with several other forthright declarations he has made before – leaving MIT for the World Bank, accepting to wide surprise the job in Israel, seeking the top job at the IMF (until age bylaws were invoked to rule him out); leaving Tel Aviv to demonstrate his interest in the Fed. Clearly Fischer would still love the chairman’s job. The central bankers who are meeting in Jackson Hole for their annual-end-of-summer haunt will likely have been giving it a good going-over.

Improbable?  With an ever-more embattled White House, and a Senate far less likely than at the outset to confirm a quirky choice, the key is what Janet Yellen intends to do.  If Yellen chooses to step down, would President Trump send Cohn’s name to the Senate in November – or that of former Fed governor Kevin Warsh (no relation!) – before that of Stanley Fisher?

The man to ask, I suppose, is General John Kelley, formerly Secretary of Homeland Security. Who would have thought that sensible thoroughly citizen would ever become White House chief of staff?  Amid a sense of political emergency in Washington, aspects of a caretaker government are setting in. Fischer is by far the single safest candidate to head the US central bank.

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Last week I noted that Russia had a deep interest in whether or not North Korea developed long-range ballistic missiles capable of carrying nuclear warheads.  A bulldog subscriber who travels frequently to China wrote Sunday to urge me to enlarge on the possibilities.  I added a few sentences to the weekly on the Web.

Though [Henry] Kissinger doesn’t mention it, Russia, which shares an 11-mile border with North Korea, is also an interested party, if only for having voted earlier this month for a unanimous Security Council resolution imposing sanctions on Pyongyang. It is also reasonable to wonder who, if anyone, financed North Korea’s build-up of nuclear capability, with money, know-how and key materials? Pyongyang’s program grew much more rapidly than had been forecast; Iran’s efforts seem to have proceeded much more slowly. China is an unlikely suspect. What about Putin and Russia? What is given can also be taken away – it would seem a small price to pay for a seat at the table.

The next day, New York Times reporters William Broad and David Sanger, citing intelligence sources and a new expert study, made the case on page 1 that the rocket motors that enabled Korean missiles to fly much farther than before in all likelihood were black-market purchases of goods “probably from a Ukrainian factory with historical ties to Russia’s missile program.”

The Times’ report was news, beat reporting by two of the best national security reporters in the business – a little increment of new knowledge. But no one who follows EP can be surprised at the notion that Russia, angry at what it views as twenty-five years of being pushed around by the United States, may be looking for new ways to gain the respect it is convinced that it deserves.

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