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How Stanley Fischer's Surprise Departure Could Shape Fed Policy

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Stanley Fischer’s surprise resignation as vice chair of the Federal Reserve provides President Donald Trump with yet another opportunity to influence Fed policy.

The 73-year-old Fischer delivered a resignation letter today to the White House today citing “personal reasons” for his departure “on or around October 13,” eight months before his term ends as vice chair.

(Related: Fed’s Fischer Warns Political Uncertainty Hurts Economic Growth)

That will leave the seven-member Board of Governors of the Fed with four vacancies, assuming the president’s nominee for vice chair of regulation, Randal Quarles, isn’t confirmed by the time Fischer leaves. (The Senate Banking committee has scheduled a confirmation vote for Thursday, but confirmation requires a vote by the full Senate.)

(Related: Economist Goodfriend Said to Be a Finalist for Trump Fed Nomination)

Trump is also interested in nominating former Fed official Marvin Goodfriend, an economics professor of economics at Carnegie Mellon University, to fill another vacancy on the board, according to a late July report in the The New York Times, but he hasn’t officially done so.

(Related: Gary Shilling: Deflation Likely; Fed ‘Completely Clueless’ )

The most important vacancy on the Fed Board will come in early February, when Janet Yellen’s term as chair ends. She’s expected to leave the Fed then although her term as a Fed governor doesn’t end until almost six years later.

(Related: Fed Raises Rates, Lays Out Plan to Cut Balance Sheet )

“I think Fischer expects Yellen to depart the Fed in February 2018, and wants to precede her out the door,” says Ward McCarthy, chief financial economist at Jefferies & Co., about Fischer’s departure. “Fischer has had a stellar career and is also 73 years old so some downsizing of his responsibilities makes sense.”

Before assuming the vice chairmanship of the Fed, Fischer was the governor of the Bank of Israel and before that he was vice chair of Citigroup, which was preceded by his service as first deputy managing director of the International Monetary Fund, chief economist of the World Bank and professor of economics at MIT.

In his resignation letter, Fischer said that during his time on the Fed board, which began in mid- June 2014, “the economy has continued to strengthen, providing millions of additional jobs for working Americans” and the Fed has been able to “build upon earlier steps to make the financial system stronger and more resilient and better able to provide the credit so vital to the prosperity and of our country’s households and businesses.”

In a separate statement on the Fed website, Yellen extolled Fischer’s ”keen insights, grounded in a lifetime of exemplary scholarship and public service” and invaluable contributions to the Fed’s monetary policy deliberations.

“He represented the Board internationally with distinction and led our efforts to foster financial stability,” Yellen said. “I’m personally grateful for his friendship and his service. We will miss his wise counsel, good humor and dry wit.”

Nariman Behravesh, chief economist at HIS, expects Fischer’s departure will make the Fed a “less friendly place,” which could accelerate Yellen’s departure since she and Fisher got along so well.

“Bottom line: Fisher’s departure gives Trump more and more power to reshape the Fed and install people more sympathetic to his views,” says Gary Shilling, president of  A. Gary Shilling & Co., an economic research and money management firm. But he added that little is known about Trump’s view on Fed policy.

What is known is Trump’s view on regulatory policy, which will be key to his decisions on Fed appointees, says Greg Valliere, chief global strategist at Horizon Investments. “Since chances are slim that Dodd-Frank will get killed, any significant regulatory changes will have to come from the Fed so his nominations — including for vice chairman and chairman — will likely be opponents of a vigorous regulatory stance toward banks.”

During his July 27 confirmation hearing before the Senate Banking Committee, Trump’s pick for Fed vice chair of supervision, Randy Quarles, said that “some refinements will undoubtedly be in order” for regulatory policies enacted after the financial crisis. 

Yellen expressed a very different view in her speech at the Jackson Hole, Wyoming, economic forum in late August. She said the regulatory reforms enacted after the financial crisis “have made the system safer” and “any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks” associated with those reforms.


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