Fed's Departing Vice Chair On Stocks, The Federal Debt And Transparency

Oct 11, 2017
Originally published on October 11, 2017 8:33 pm

Stanley Fischer is resigning early as vice chair of the Federal Reserve after three years at the central bank. His term was set to expire next June. Before becoming second in command to Fed Chair Janet Yellen, the former MIT economics professor served as head of the Bank of Israel and as a top official at the International Monetary Fund, the World Bank and Citigroup.

In an interview with NPR's Robert Siegel, Fischer says that despite record highs in the stock market — boosted by the Fed's low interest rates — he doesn't see a bubble. Fischer also says that the $20 trillion national debt is not worrisome currently, but if interest rates go up that could cause "significant problems" for the federal budget.

Critics have said the Fed isn't transparent enough, but Fischer says releasing transcripts of Fed meetings immediately could inhibit frank discussions among policymakers.


Interview Highlights

On whether the Fed keeping interest rates low is causing a stock market bubble

Well, with low interest rates stock market prices will tend to be higher than they would be if the interest rates were higher. So people who sort of look at the stock market compared with the average of when interest rates were 6 percent or 7 percent will say values are very high. But we don't think we're in a situation where we have an inflationary bubble or an unsustainable set of prices in the asset markets, but we don't comment on that very much and I shouldn't go on.

On criticism that the Fed should be more transparent

The transcripts of the discussions are published with a five-year lag, which is probably the shortest among the major central banks or among any government institutions. And we publish minutes which are pretty accurate ... . So I think it is now among the most transparent of central banks. There is a problem with discussing unusual ideas in a public meeting. And if you say, "Gee, you know, we're getting stuck on this and I thought about that. What do you guys think?" You're asking for people's reactions. You're not making a proposal. And that disappears if everything comes out immediately. So I think the five years is workable and I think the Fed is very transparent. The chair testifies four times a year at the Congress ... and everybody speaks.

On whether the $20 trillion federal debt worries him

It doesn't keep me awake at night. It's not a good thing to have a very large debt. And some countries have got down to very low levels. The Australians have done it, the Canadians have done it at various stages. We are not there now, especially after the financial crisis. ... The interest rates are very low, so it's not a big burden on the budget. But let the interest rates go up and we could be seeing significant problems arising, so we need to be careful with that.

On what advice he'd give someone starting work at the Federal Reserve Board

It's the usual advice going into a new institution: Don't throw your weight around until you know in which direction to throw it. It takes a while to get to understand how an organization runs. ... Take a bit of time, realize you're dealing with professionals. You're not going to get anywhere by saying, "This is the way I think. Now, you just do it." They're kind of resistant, the staff — rightly so — to people who don't make cases proficiently.

The advice I'd give is, remember you're in a professional agency with a legal mandate to keep prices stable and to keep full employment. That's the role of the Fed defined in the law. ... And then you have to deal with difficulties at the margins, like ... financial stability. That's not a major part of the law; it maybe should be.

Jessica Cheung and Jolie Myers produced and edited this interview for broadcast.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

ROBERT SIEGEL, HOST:

Stanley Fischer is retiring as vice chair of the Federal Reserve. His career as an economist and central banker is unique. As an MIT professor, Stanley Fischer's graduate student advisees included former Fed Chair Ben Bernanke, the head of the European Bank, Mario Draghi, and George W. Bush's White House economic adviser, Gregory Mankiw.

Fischer was a senior official at both the International Monetary Fund and the World Bank. And in 2005, he took a job as head of the Bank of Israel, where he is credited with stabilizing that country's economy even as other economies suffered through the Great Recession. Then it was back to the U.S. and the Fed as second in command to Janet Yellen. Thanks for talking with us today.

STANLEY FISCHER: Thank you, Robert.

SIEGEL: I want to ask you about the Federal Reserve. It's a unique institution - a central banking system, not a central bank - with both public and private characteristics. There are critics who say that it should be more transparent. Should the proceedings of the Federal Reserve be available to Congress and the public, or would that risk politicizing monetary policy too much?

FISCHER: Well, they are published. The transcripts of the discussions are published with a five-year leg, which is probably the shortest among any government institutions. There is a problem with discussing unusual ideas in a public meeting. And if you say, gee, you know, we're getting stuck on this and I thought about that; what do you guys think, you're asking for people's reactions. You're not making a proposal. And that disappears if everything comes out immediately. So I think the five years is workable. I think the Fed is very transparent. The chair testifies four times a year at the Congress, and everybody speaks.

SIEGEL: But chairs of the Fed speak in a notoriously opaque dialect of English, which is often hard to follow. And five years puts the actions of the Fed into the historical record. It's not what we would call instant transparency.

FISCHER: But Robert, it's not a matter of instant transparency. It's a matter of the fact that that is the final description of what was said. There are minutes within three weeks of the meeting. There are presentations. There are speeches. I don't think there's a whole lot that is going on except very incipient ideas.

SIEGEL: When you serve at the Fed, since it is this odd hybrid version of a central banking system, do you feel like an officer of the government of the United States of America, part of the federal government?

FISCHER: Well, I had a former member of the Fed who always used to say the Fed is of the government but not in the government. I wasn't absolutely sure what it meant.

SIEGEL: (Laughter) I was going to...

FISCHER: But it sounds (laughter) - it sounds about right.

SIEGEL: OK.

FISCHER: Yes, you feel you're part of the government. But do you feel you're part of the government which the rest of the government feels free to attack when the need arises in their view.

SIEGEL: They can attack, but they do so pretty well knowing that you're insulated from those attacks.

FISCHER: Yes, you are insulated. When I was governor of the Bank of Israel, I used to say, we are independent. But understand that two bad decisions, and we're not independent.

SIEGEL: I see. That was the limit of independence. I want to ask you about Fed policy and the economy these days. The Federal Reserve has kept interest rates very, very low. Stock market's going gangbusters, and one explanation that skeptics offer is that it's because you can't make anything from any interest yielding security, therefore money goes into stocks. Is there an equities bubble, a stock market bubble right now in America?

FISCHER: Well, with low interest rates, stock market prices will tend to be higher than they would be if the interest rates were higher. So people who sort of look at the stock market compared with when interest rates were 6 percent or 7 percent will say values are very high. But we don't think we're in a situation where we have an inflationary bubble or an unsustainable set of prices in the asset markets. But we don't comment on that. And I shouldn't go on.

SIEGEL: (Laughter) Well, when you referred to the days of 6 and 7 percent rates of interest, should we assume for the rest of our natural lives - those of us with a few decades left, let's say - that we won't see such days again?

FISCHER: It's so hard in economics to know what is coming down the road. As economists say, it's very difficult to forecast, especially about the future.

SIEGEL: (Laughter) OK. You could remain as vice chair for another few months. But couldn't you remain in office until June if you chose?

FISCHER: I could remain in office until June, but I have personal reasons for stepping down now.

SIEGEL: And if you were to give advice to somebody on the way in about the Federal Reserve and what wisdom you've gained about it, what would your advice be to a new vice chair or a new governor?

FISCHER: You know, it's the usual advice to anybody going into a new institution. Don't throw your weight around until you know in which direction to throw it. Remember; you are in a professional agency with a legal mandate to keep prices stable and to keep full employment. That's the role of the Fed defined in the law.

SIEGEL: Stanley Fischer, retiring vice chair of the Federal Reserve, thanks a lot for talking with us today. Good luck.

FISCHER: Thank you, Robert. Transcript provided by NPR, Copyright NPR.