The resignation of Vice Chair Stanley Fischer reminds us that the fed faces an uncertain futureby George Magnus / September 11, 2017 / Leave a comment
This Friday will mark ten years since Lehman Brothers filed for bankruptcy.
Whatever happened in the decade before and wherever we want to place the blame, there is no question that the US authorities were out of the blocks pretty quickly to try and contain the financial and economic carnage. They rushed through an $800 billion stimulus programme that President Obama signed into law in February 2009, acted promptly to forcibly recapitalise banks, and the Federal Reserve started quantitative easing (QE) in December 2008. As Washington politics dulled the capacity to use fiscal policy, the Fed was left as the only agency of macroeconomic stability.
By and large, it has done a good job, even if QE has had consequences that weren’t necessarily intended. But ten years on, the Fed faces an uncertain future. We knew this before the surprise resignation of Vice Chair, and second in command, Stanley Fischer last week, but his imminent departure has illuminated the problem anew.
Fischer will be a big loss. He had a stellar reputation as an academic and practical economist and central banker. He governed the Bank of Israel from 2005-13. On monetary policy, he was somewhat on the hawkish side of the Federal Reserves’s policy making committee, but was adamant about not succumbing to political pressures for financial deregulation.
Although his term doesn’t end until June 2018, Fischer’s resignation with effect from next month, for personal reasons, brings the number of vacancies on the Fed’s seven-strong Board of Governors to four. There could soon be five because the term of Janet Yellen, Chair of the Fed, is up in February 2018. Some American presidents wait a long time for the opportunity to influence the composition of the Federal Reserve. Lucky old Donald Trump. He hasn’t even been in the White House for eight months and he has the chance to reshape it completely. The only nominee he has put forward for confirmation by the Senate so far, as Vice Chair for Banking Regulation, is Randy Quarles, a private equity executive who supports the Administration’s and Republicans’ call for banking de-regulation.