In Stanley Fischer, the US Federal Reserve would gain a financial statesman with contacts and credibility around the world as it begins to pull back on record stimulus, possibly unsettling foreign markets.
Fischer, 70, was picked on Friday to be the Fed’s vice chairman just as US officials start to slow bond purchases. The tapering and eventual monetary tightening could roil emerging markets as higher rates there pull investment flows from higher-yielding, higher-risk stocks and debt.
US Fed Chairman Ben Bernanke acknowledged the potential fallout in September last year, saying, “we are watching those developments very carefully.”
Fischer has spent much of the past 25 years near the top of global economic policymaking, helping arrange bailouts for Mexico and Brazil while he was the No. 2 official at the IMF in the 1990s. If approved by the US Senate, he would bring experience that can help the Fed monitor the impact of its policies abroad and make him an ambassador who explains the US central bank’s intentions and goals.
“Here is a guy who trained half of the central bankers in the world. He knows them,” said former Fed Vice chairman Donald Kohn, a senior fellow at the Brookings Institution.
Fischer “is tremendously respected everywhere in the world, not only by central bankers, but by finance ministers and prime ministers,” he said.
US President Barack Obama also asked Lael Brainard, formerly the US Treasury Department’s top international official, to fill an empty seat on the board and a current US governor, Jerome Powell, to serve a second term, according to a statement from the White House.
The selections come at a time when the global economic outlook remains clouded and US officials are seeking more cross-border coordination in regulating banks.
They also follow a trend by other governments to seek out leaders with international experience to help run their central banks.
The UK government appointed Canadian Mark Carney to run the Bank of England and Jon Cunliffe — who, like Brainard, is a former Group of Eight negotiator — to serve as one of his deputies.
Raghuram Rajan, hired last year as governor of the Reserve Bank of India, was previously chief economist at the IMF.
Graeme Wheeler, a former World Bank official, was hired in 2012 to be governor of the Reserve Bank of New Zealand.
“Their knowledge and awareness of international economies and markets and familiarity with international policymakers is an argument in favor of them,” said John Lipsky, a former first deputy managing director of the IMF, adding they also had other qualifications.
The MSCI Emerging Markets index touched a four-month low last week as capital flows shifted in the wake of the Fed’s decision to trim its longer-term bond purchases on Dec. 18. The index increased 0.7 percent on Friday to 970.15, paring its drop for the week to 1 percent.
The measure for emerging-market stocks has dropped 3.3 percent this year after trailing shares in developed countries by the most since 1998 last year.
“Many in emerging markets and particularly their central banks are increasingly concerned about what the Fed is doing and how this pullback will happen,” said Thomas Costerg, a financial markets economist at Standard Chartered PLC in New York.
Obama is reshaping the Fed board as the US central bank tackles some of the biggest challengesit has faced in its 100-year history.
Fischer would replace Janet Yellen, who was approved by the Senate this week for the chairmanship of the US central bank. Bernanke’s term expires on Jan. 31.