Fischer: Policy Decisions Are Best Made Early

Former Bank of Israel chief offers tips on his years spent fighting financial crises.


Former Bank of Israel Governor Stanley Fischer, who is now U.S. President Barack Obama’s pick for the No. 2 job at the Federal Reserve, said Friday that decades of crisis-fighting have taught him the importance of making policy decisions quickly, even before all relevant data is in hand.

“We tend to underestimate the lags in receiving information and the lags with which policy decisions affect the economy,” he said, in remarks prepared for delivery to the Stanford Institute for Economic Policy Research.

“Those lags led me to try to make decisions as early as possible, even if that meant that there was more uncertainty about the correctness of the decision than would have been appropriate had the lags been absent,” he said.

Fischer was in California to receive the institute’s $100,000 prize, a day after his nomination hearing in Washington – a session that shed little new light on his policy leanings but suggested he is largely supportive of the Fed’s current super-easy monetary policy. He is expected to win Senate confirmation, although the timing is unclear.

His comments Friday came in a speech entitled “Lessons from Crises, 1985-2014,” billed as a set of remarks about the past rather than reflections on current events.

Fischer, who holds American and Israeli citizenship, was governor of Israel’s central bank from 2005 until June 2013.

At 70, Fischer is anything but an impetuous decision maker. An economics professor for many years, he taught both former Fed chairman Ben Bernanke and European Central Bank chief Mario Draghi. He spent seven years as the No. 2 official at the International Monetary Fund during the Asian financial crisis.

As head of the Bank of Israel, he was known for making decisions on interest rates that sometimes took the markets by surprise.

On Friday, he recounted one rate decision he faced in his early days at Israel’s central bank.

He decided to keep the rate unchanged until the following month, he recalled telling his advisers, when the situation would be clearer. “It is never clear next time; it is just unclear in a different way,” came the response from his second-in-command.

And so, Fischer said Friday, he learned his lesson: “Don’t overestimate the benefits of waiting for the situation to clarify.”

Stanley Fischer at his farewell press conference, June 25, 2013.Credit: Olivier Fitoussi

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