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Boston Globe
3 days ago
- Business
- Boston Globe
Stanley Fischer, economist who tackled global crises, dies at 81
After all, he was, in the words of The New York Times, 'the closest thing the world economy has to a battlefield medic.' Dr. Fischer, who served as head of Israel's central bank and as vice chair of the Federal Reserve Board in addition to his IMF time crafting bailouts for stuttering economies from Thailand and Indonesia in Far Asia to Russia to Brazil, died May 31 in Lexington. He was 81. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up The cause was complications of Alzheimer's disease, his son Michael told The New York Times. Advertisement For all the bold line entries on his CV, Dr. Fischer's influence perhaps was greatest in developing a generation of economists, policy makers, and deep thinkers at the Massachusetts Institute of Technology. The roster of students he taught and advised included Ben S. Bernanke, who would go on to become Fed chair and called Dr. Fischer his mentor; Mario Draghi, a future European Central Bank president and prime minister of Italy; Greg Mankiw, who would lead President George W. Bush's Council of Economic Advisers; Christina Romer, chair of the council in the Obama administration; Kazuo Ueda, named Bank of Japan governor in 2023; and IMF chief economists, including Olivier Blanchard, Ken Rogoff, and Maurice Obstfeld. Advertisement Countless other college undergraduates were introduced to the dismal science by 'Macroeconomics,' the textbook Dr. Fischer wrote in 1978 with his MIT colleague, Rudi Dornbusch. 'No one had more cumulative influence on the macroeconomic policy makers of the last generation than Stanley Fischer,' Lawrence Summers, who as a Harvard student would audit his classes, told Bloomberg News. 'All of us were shaped by his clarity of thought, intellectual balance, personal decency, and quality of character. 'People all over the world who never knew his name lived better, more secure lives because of all that he did through his teaching, writing, and service to make policy better,' said Summers, who served as Treasury secretary under Bill Clinton and president of Harvard University. 'In one lifetime, he did the work of many.' With the Teton Mountains behind them, Ben Bernanke, then Federal Reserve chairman, chatted with Dr. Fischer outside of the Jackson Hole Economic Symposium in 2012. Ted S. Warren/Associated Press Dr. Fischer was known for his genial, consensus-seeking style. Yet his prescriptions at the IMF included austerity measures that hit heavily on the poor and working class in beleaguered nations. 'Look, I know we've become everyone's favorite whipping boy,' Dr. Fischer told the Times in 1998. 'But remember that in most cases governments call us in only after they discover they are in a mess, usually because they didn't do things they needed to do long ago. If the problems were easy to solve, they'd do it themselves. 'And it's our job to convince people to do things that we believe, and they probably know, are good for them. Even if those things are politically unpopular -- and they usually are.' Advertisement The cures Dr. Fischer pushed for financial crises were broadly in line with the Washington Consensus, a set of 'best practices' compiled in 1989 by John Williamson, a British economist. They were also dubbed the 'Massachusetts Avenue Consensus,' referencing the influence of its promulgators at MIT and Harvard. Those guidelines called for openness to free markets, global trade, and foreign investment. In a 2003 lecture on globalization, Dr. Fischer generally defended the IMF's approach by arguing that opening up to foreign trade and investment had lifted multitudes out of poverty in China and India. In many ways, he was the intellectual heir to British economist John Maynard Keynes, whose calls for government intervention to steer the economy resonated from the 1930s through the 1960s but came under harsh attack in the 1970s. Dr. Fischer's research in the 1970s focused on that split among economists. If unemployment was too high, the Keynesians argued, central banks could stimulate the economy by priming the money supply. Critics countered that such stimulus would prompt workers to expect higher inflation and demand pay increases; the result would be faster inflation and no sustainable rise in employment. Dr. Fischer argued that wages were 'sticky' because of long-term contracts and didn't adjust immediately when a central bank changed its policy. Thus, he wrote in an influential 1977 paper, a well-timed stimulus program could boost job creation in the near term without igniting inflation. 'MIT economists tend to believe governments can do a variety of things well and can improve the situation versus a pure laissez-faire policy,' he told Institutional Investor in 1994. Advertisement In addition to serving as the No. 2 officer at the International Monetary Fund from 1994 to 2001, the head of Israel's central bank from 2005-13, and vice chair of the Fed from 2014-17, Dr. Fischer was chief economist of the World Bank in the late 1980s and vice chair of Citigroup in the early 2000s. He was influential partly because of his diplomatic nature, Blanchard, one of his former students and later a colleague at MIT, wrote in 2023. Even when the field of macroeconomics 'was going through wars of religion, there was no sense of 'us versus them' but instead an openness to alternative views,' Blanchard wrote. Dr. Fischer, then vice chair of the Federal Reserve, spoke with Federal Reserve Chair Janet Yellen during an open meeting in Washington in 2016. Cliff Owen/Associated Press Stanley Fischer was born into a Jewish family on Oct. 15, 1943, in Lusaka, Northern Rhodesia, then a British protectorate, which became Zambia after independence in 1964. He grew up partly in Mazabuka, a town southwest of Lusaka, where his parents operated a general store. His father, Philip Fischer, was an immigrant from Latvia. His mother, Ann (Kopelowitz) Fischer, was of Lithuanian descent. The family moved to Southern Rhodesia, now Zimbabwe, when Stanley was about 13. He joined a Jewish youth group and in 1960 visited Israel as part of a program for young leaders. At the London School of Economics, Dr. Fischer earned bachelor's and master's degrees in economics. For his doctoral studies, he moved to MIT, in part to study with one of his intellectual heroes, Paul Samuelson, who would earn the Nobel in economic science. Dr. Fischer married Rhoda Keet in 1965. They had met as teenagers in a Jewish youth group. He left the Fed in 2017 partly to take care of his wife, who had Lewy body dementia. She died in 2020. In addition to his son Michael, Dr. Fischer leaves two other sons, David and Jonathan, and nine grandchildren. Advertisement After earning his doctorate at MIT in 1969, Dr. Fischer moved to the University of Chicago as a postdoctoral researcher and assistant professor. 'At MIT you did the mathematical work,' he told the Times in 1998, 'and at Chicago you asked the question of how this applies to the real world.' His work in Chicago gave him a clearer understanding of that school's free-market theories and critique of Keynesian economics. He returned to MIT in 1973 as an associate professor. Gradually, he became a magnet for graduate students. 'Stan had acquired near-guru status,' Blanchard said in an MIT statement. Blanchard would recall how Dr. Fischer would help them with their work while they jogged alongside the Charles River. 'Fischer is rightly remembered as an unparalleled scholar, policy maker, and teacher. But it was his empathy, humanity, and thoughtfulness that stick with me,' said Obstfeld, one of those former students. 'He apparently kept all of his students' doctoral dissertations long after they graduated. When he moved from New York to Israel — surely with many better things to do — I received mine in the mail with this note from Stan: 'For the grandchildren.'' Michael J. Bailey of Globe staff contributed to this obituary. Material from The New York Times and Bloomberg News was also used.
CNN
31-03-2025
- Business
- CNN
Trump is about to test whether the Fed learned its inflation lesson
The Federal Reserve admits it badly misjudged the beginning of the inflation crisis, but officials hope they won't make the same mistake again. President Donald Trump's tariffs are about to determine whether America's central bank is up for the challenge. In 2021, as the US economy recovered from the pandemic, consumer prices began to creep higher. Fed officials said then that rising inflation would only be 'transitory.' Notoriously, that proved to not be the case, and, by the spring of 2022, the Fed was in the throes of its most aggressive rate-hiking campaign since the 1980s. Inflation has improved considerably since then, but the Fed still gets flak for being so wrong in 2021. Now the Fed is working on a new 'policy framework,' including lessons from its mistaken bet that high inflation would be just a blip. And while that framework needs to work for future crises, it's especially urgent at the moment — given the chaos and confusion already spurred this year by President Donald Trump's sweeping economic agenda, centered on tariffs, tax cuts and deregulation. 'I think it's a fair criticism that we could have acted earlier,' James Bullard, who served as president of the Federal Reserve Bank of St. Louis from 2008 to 2023, told CNN in an interview late last year. 'But you're never going to be totally certain in macroeconomics about what's going to happen next and this is the world we've always lived in.' Sen. Elizabeth Warren of Massachusetts, a reliable critic of the Fed, was blunter during Chair Jerome Powell's February semiannual update on monetary policy: 'It's now clear that the Fed acted too late and let inflation get too high, and then responded by keeping rates too high for too long.' The pandemic triggered a sharp, two-month recession, with double-digit unemployment. In the previous downturn, during the 2007-2009 Great Recession, the labor market was slow to recover. The Covid recession, hitting before prices started to jump, kept the Fed focused on promoting job growth, rather than wrangling inflation. After all, runaway prices hadn't been a problem in decades. 'The 2020 framework put more emphasis on full employment,' said Laurence Ball, an economics professor at Johns Hopkins University who researches monetary policy. But back then, economists were convinced that inflation would quickly fall down to earth. 'The good ship Transitory was a crowded one,' Powell said last year in his keynote speech at the Kansas City Fed's Jackson Hole Economic Symposium. Kristin Forbes, an economist at the Massachusetts Institute of Technology and former member of the White House's Council of Economic Advisers, said during a panel discussion earlier this month that it didn't matter the US central bank was late because it picked up ground by raising rates aggressively — all without sacrificing too much of the economy's health. 'Central banks were slow to tighten, but they made up for that,' she said. Every five years, the Fed revises a two-page document detailing the Fed's strategy and long-term macroeconomic goals. That's happening now, with officials expected to finish by this summer. But Trump has already changed the world's biggest economy in big ways, just in two months in office. And there are more changes on the way. On Wednesday, Trump is set to announce sweeping tariffs that will match those foreign countries impose on the United States, continuing an ongoing tariff spree that has already doubled duties on China to 20% and imposed new ones on metals and autos. Trump's tariffs are widely expected to jack up prices and weaken growth, potentially leading the US economy toward 'stagflation,' a toxic duo of tepid or negative growth and accelerating inflation. 'It's a difficult moment right now because there are risks on both sides, with some measures indicating the risk of a recession while others suggest a resurgence of inflation,' said Emi Nakamura, an economics professor at the University of California, Berkeley. 'But obviously, you don't want to be fighting the last war. You want to recognize that there are some special features in each economic cycle.' 'So, given that we've had this recent experience with inflation, they have to be thinking about a framework in a context where there's now a real concern that longer-term inflation expectations could get destabilized,' Nakamura added. One closely watched survey by the University of Michigan, out Friday, showed that inflation expectations in the next 5 to 10 years surged this month to the highest level since February 1993. Forbes, the MIT professor, suggested loosening the Fed's 2% inflation target to a band, such as 1.5%-2.5%. Powell has said the 2% target is not going away but hasn't weighed in on a range instead. The Fed's framework review is also looking at the central bank's 'policy communications tools,' according to the Fed, which was precisely the central bank's biggest mistake, according to Laurence Meyer, a former Fed governor who served from 1996 to 2002. 'Transitory was a terrible word to use because that means fleeting, so markets lost some confidence in their communication,' he told CNN. 'Temporary means not permanent, and that's what they should have said'
