The Fenghua generation of Fisher's curtain call, where does the Fed go?

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Source: Suning Fortune Information

On September 6, the Fed's "No. 2" Stanley Fisher resigned as the Fed's vice chairman for "personal reasons", triggering financial market turmoil - the US dollar index fell to 91.5 on September 7.

Whether it's economics or financial market influence, Fisher has a unique voice. He and Yellen formed the Fed’s “dream combination” and made outstanding contributions to the US economic recovery and the regularization of monetary policy.

Founder of New Keynesianism

Referring to Fisher's influence in the economics field, the first reaction of economics professionals must be his "macroeconomics" textbook with Rudiger Dornbus. Since the first edition of the book was published in 1977, it has been revised to the twelfth edition, and it has become the mainstream textbook in the world.

Of course, Fisher's contribution to the development of economics is more than just a mainstream textbook. His contribution is mainly reflected in a major breakthrough in economic theory.

In the late 1970s, Fisher and Edmund Phelps and John Taylor built the foundation of the new Keynesian macroeconomics. In 1977, Fisher independently wrote "Long-Term Contracts, Rational Expectations, and Best Money Supply Rules," demonstrating that under nominal rigidity, monetary policy is effective even with rational expectations. Later, on the basis of Fisher's conclusion, Phelps and Professor Taylor jointly published "The Stability Power of Monetary Policy under Rational Expectation", further demonstrating the effectiveness of monetary policy under rational expectations.

Based on the research of Fisher et al., in the 1980s, young and middle-aged economists such as Mankiw and Summers provided a strict micro-foundation for New Keynesian economics. The core point was: in dealing with external shocks, wages And the price can not be adjusted in time to make the market clear, thus causing cyclical fluctuations in the macro economy. On the whole, New Keynesianism inherits the core views of Keynesian effective demand and macroeconomic regulation and control policies, and advocates government intervention in economic activities.

In the 21st century, Fisher's students at the Massachusetts Institute of Technology (MIT) took their monetary policy effectiveness to the extreme. Let's take a look at Fisher's huge influence on global central banks over the past two decades:

From 1977 to 1988, during his tenure as the head of the MIT Department of Economics, Fisher was a doctoral tutor for former Federal Reserve Chairman Ben Bernanke, and taught Obama's economic advisers Summers, Romer and George W. Bush's economic adviser Mankiw.

In a public event, Bernanke publicly stated that Fisher is the teacher who has the most influence on himself.

European Central Bank President Mario Draghi’s Ph.D. thesis was directed by Fisher, the Bank of England’s former governor, Mo Wen Jin, the two central governors of India, Rajan and Subara, and the Chilean central bank’s former degli Gregory. Leo, etc., both studied at MIT or as a visiting scholar at MIT, were deeply influenced by Fisher.

Thus, since the 21st century, global monetary policy has been dominated by the MIT disciples of the "MIT Money School" led by Fisher, and the "Chicago disciples" that Friedman dominated monetarism in the 1980s and 1990s. Intertwined.

The core concepts of the “MIT Money School” are:

A sufficient supply of money can reverse deflation;

When traditional monetary policies such as interest rate adjustments fail, quantitative easing can effectively stimulate inflation expectations and stimulate aggregate demand;

The effect of expansionary fiscal policy is still significant when interest rates are low.

In the past ten years, these ideas have supported the round-the-clock quantitative easing actions of the global central bank and avoided the advent of the second Great Depression.

Perfect combination of practice and theory

Many economists are scholars in the study, and Fisher has achieved the perfect combination of theory and practice. He is the leader of multilateral financial institutions, the decision makers of central banks, and the financial market.

First look at Fisher's shining resume at international financial institutions:

From January 1988 to August 1990, Fisher served as Vice President and Chief Economist of the World Bank, where he led the World Bank's research work.

From September 1994 to August 2001, Fisher served as the first vice president of the International Monetary Fund (IMF). He was the key figure in the IMF's handling of the 1994-1995 Mexican financial crisis and the 1997-1998 Asian financial crisis. A series of reform proposals put forward by the crisis countries have given Mexico and Asian countries some positive effects in response to the international financial crisis in 2008.

In 2011, Fisher was elected to the IMF's president, and he withdrew from the election because of the historical tradition of the IMF's president.

Let's look at Fisher's experience as a decision maker in central banks:

In the 1980s, Fisher, a Jew, helped Israel successfully control three-digit inflation and avoided the collapse of the Israeli financial system.

On May 1, 2005, Fisher was invited by the Prime Minister of Israel to join Israeli nationality as the Governor of the Bank of Israel. During his tenure, the international financial crisis broke out in 2008, and Fisher helped Israel to weather the crisis – even in 2009, when the global economy fell into recession, the Israeli economy achieved a growth rate of 1.27%.

In June 2012, Fisher left his post after the end of his second five-year term. Israeli Prime Minister Benjamin Netanyahu spoke highly of Fisher, saying that Fisher is "the most economic growth and economic success in Israel." “Effective partners”, whose “experience, wisdom and international connections” are crucial during the global economic crisis.

However, Fisher's central bank decision makers' career has not ended.

At the invitation of Fed Chair Yellen, on January 10, 2014, US President Barack Obama nominated Fisher as the Fed’s first vice chairman to help Yellen realize the Fed’s monetary policy routineization. Wall Street’s interpretation of this appointment Yes - Yellen and Fisher will form the Fed's "dream team." Facts have proved that they are worthy of the reputation of the “dream team” – at present, the US economic recovery is stable, the unemployment rate is hitting new lows, and policies such as raising interest rates and shrinking contracts are proceeding in an orderly manner.

During his tenure as the Fed's first vice chairman, Fisher also served as chairman of the Fed's Financial Stability Board and the Economic and Financial Monitoring and Research Committee. He is also the Fed in the International Monetary Fund, the G20, the G7, etc. Representatives within international organizations.

Finally, let's see how Fisher is digging the Wall Street:

After retiring as the IMF's vice president in 2001, Fisher was invited by Citigroup to serve as vice chairman of Citi International and actively expand Citi's international business. This Wall Street experience has accumulated tens of millions of personal assets.

According to Bloomberg estimates, Fisher's personal worth of 14.6 million-56.3 million US dollars, far more than Yellen's 4.8 million to 13.3 million US dollars, is one of the richest officials in the history of the Fed.

In addition, he also holds Citigroup employee funds and Brenheim funds, investing in world-class international companies such as Google, Apple, Microsoft, Exxon Mobil, Oracle, Coca-Cola, Berkshire Hathaway, eBay, McDonald's, and Estee Lauder. The company's shares.

What does the Fisher flash mean to the Fed?

The Fisher flash has become a boat, and the Fed personnel changes and the prospects of monetary and financial policies have become the two major concerns of the market.

For the Fed personnel changes, after Fisher’s flash, there will be four vacancies in the Fed’s seven directors. On the surface, President Trump will further enhance his future influence on the Fed by appointing Fed’s directors. And control. However, it is worth noting that Trump previously nominated private equity investment manager Randall Quars as the Fed governor and vice chairman of financial supervision, but so far has not been approved by the US Congress, the Fed governor position has not been vacant for a long time.

In fact, Fisher’s flash of words may increase the likelihood of Yellen’s re-election. There are two reasons for this:

First, Trump will continue to maintain the continuity of the Fed's decision-making in accordance with historical practice, so as not to cause excessive market turmoil;

Second, the flash of Fisher's remarks may be the result of a compromise between supporters and opponents of Yellen's re-election in exchange for Trump's support for Yellen's re-election.

However, Yellen’s re-election has also had unfavorable factors. Last month, her speech at the Jackson Hole Global Central Bank Governors’ Meeting indicated that she will continue to adhere to the strict financial supervision measures of the 2010 Dodd-Frank Act, which is obviously The direction of Ramp's relaxation of financial supervision does not match. Therefore, Trump hopes to replace Yellen with former Goldman Sachs president Cohen as the next Fed chairman.

For the Fed's monetary policy, whether Yellen is re-elected or another person is the chairman of the Fed, the current monetary policy of gradually raising interest rates and shrinking the table will be implemented.

For financial regulatory reform, if Yellen is re-elected, it will obviously become the constraint of Trump's financial regulatory reform, but it does not rule out that the Fed makes a certain degree of compromise to the Trump administration. On the contrary, once Cohen, the former president of Goldman Sachs, who is completely loyal to Trump, is in charge of the Fed, a new round of relaxation of financial regulatory reforms in the United States may come early.

It must be acknowledged that many of Trump's policy claims have been contradictory to date, swinging back and forth, and uncertainty is very obvious, and the most worrying financial market is this uncertainty.

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