Fischer speaking means Bernanke listening when rates fluctuate

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: When US treasury secretary Timothy Geithner landed in Istanbul for a global economic summit on October 2, his first meeting among the finance ministers and central bankers invited from more than 150 countries was with a man who controls an economy smaller than Missouri’s.

The private dinner discussion was a sign of how Bank of Israel governor Stanley Fischer’s influence exceeds the impact of his nation’s $200 billion gross domestic product. Fischer, 66, is a former Massachusetts Institute of Technology scholar who has been a mentor to a group of US policy makers trying to lead the world out of the worst recession in 60 years.

Among his former students: Lawrence Summers, director of US President Barack Obama’s National Economic Council, and Federal Reserve chairman Ben S Bernanke, whom Fischer advised on Bernanke’s graduate thesis in 1979. As first deputy managing director of the International Monetary Fund during the 1990s, Fischer worked with Geithner and Summers, then US treasury officials, to resolve financial crises in Mexico, Russia and Southeast Asia.

“Many central bankers value him as a thinker about central banking, about monetary and financial policy,” says Nobel Memorial Prize-winning economist and MIT professor emeritus Robert Solow, one of Fischer’s own mentors.

Fischer also earned a reputation as a trailblazer after he cut Israel’s benchmark interest rate by 50 basis points to 3.75% on October 7, 2008—acting the day before colleagues in the US, the UK and the euro zone. He then reduced the rate seven more times to a record low of 0.5% by April 2009. On August 25, Fischer became the first central bank governor in the world to reverse course in response to signs of a financial recovery when he raised the benchmark a quarter point to 0.75%. Bank chiefs in Australia and Norway followed.

On November 23, Fischer tightened credit again, raising the benchmark by a quarter of a percentage point to 1%.

“Israel’s economic indicators point to a recovery, but uncertainty persists regarding its strength,” the bank said in a statement. “Even after this increase, the interest rate in December will be at the low level of 1 %, continuing the accommodative monetary policy that is intended to support further economic recovery.”