How Stan Fischer Became a Global Central Banking Giant

By David Harrison Features Dow Jones Newswires

Sometime in the early 1960s, a budding economist at the London School of Economics had a revelation: Statistical models would soon do such a good job of predicting the economy's future that central bankers would be able to sit back and watch monetary policy's most difficult problems solve themselves.

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Looking back about half a century later, that economist -- Stanley Fischer -- brushed off that earlier epiphany as "a chimera."

Despite increasingly complex new economic models, Mr. Fischer has still had to wrestle with some of the world's most complex central-banking problems during a long and varied career. During that time, he became a leading figure in international monetary policy, known for his advocacy of a muscular form of central banking to address financial crises and economic fluctuations.

Mr. Fischer, 73 years old, announced his retirement as vice chairman of the Federal Reserve on Wednesday, to take effect on or around Oct. 13, citing personal reasons.

At the Fed, he helped Chairwoman Janet Yellen guide the central bank as it began unwinding the extraordinary economic stimulus policies put in place after the 2007-09 financial crisis. After holding interest rates near zero for seven years, the Fed has raised rates four times since 2015 and this month is expected to announce plans to begin unwinding its $4.5 trillion portfolio of bonds and other assets accumulated during and after the crisis.

In his three years in the Fed's No. 2 spot, Mr. Fischer served as one of Ms. Yellen's most important allies even though he sometimes expressed more readiness to raise interest rates than some of his more cautious colleagues.

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As governor of the Bank of Israel from 2005 to 2013, he navigated Israel through the worst of the global financial crisis while working with his Palestinian counterparts on domestic economic policy.

Before that, as deputy director at the International Monetary Fund in the 1990s, Mr. Fisher helped build the so-called "Washington Consensus," which called on countries to let exchange rates and capital flows move freely while trying to balance their budgets. Those recommendations, which generated criticism from both the left and the right, helped guide the IMF as it battled a Mexican currency crisis in 1994 and the Asian financial crisis of 1997.

Mr. Fischer taught at the University of Chicago and the Massachusetts Institute of Technology, where he trained many future central bankers, including former Fed Chairman Ben Bernanke and European Central Bank President Mario Draghi.

Born in Northern Rhodesia, now Zambia, Mr. Fischer first came to the U.S. in 1966 to get a Ph.D. at MIT.

In 1977, he emerged as one of the leading advocates for an activist central bank when he published a research paper arguing that monetary policy makers should intervene to help fight economic downturns. That argument clashed with a prominent view of monetary policy at the time popular at the University of Chicago, where he had also taught, that saw such intervention as counterproductive.

Over the years, central bankers around the world came to adopt Mr. Fischer's "New Keynesian" position, particularly in the wake of the global financial crisis.

Policy makers cut rates aggressively since the 2007 crisis -- in some cases into negative territory -- and bought trillions of dollars of assets to stimulate sluggish economies. Now, with economic growth picking up, those policy makers are taking steps to undo those moves.

On Wednesday, as word of his retirement rippled around the world, central bankers praised him for his steady hand and his long experience.

"Students and practitioners of macroeconomic policy will continue to draw inspiration from Stan's contributions at the Federal Reserve and the Bank of Israel, his earlier stellar career at the IMF and his many and varied academic contributions," said Bank of England Gov. Mark Carney.

Ms. Yellen said: "Stan's keen insights, grounded in a lifetime of exemplary scholarship and public service, contributed invaluably to our monetary policy deliberations."

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

September 06, 2017 18:42 ET (22:42 GMT)