The resignation of Vice Chair Stanley Fischer reminds us that the fed faces an uncertain future

This Friday will mark ten years since Lehman Brothers filed for bankruptcy.

Whatever happened in the decade before and wherever we want to place the blame, there is no question that the US authorities were out of the blocks pretty quickly to try and contain the financial and economic carnage. They rushed through an $800 billion stimulus programme that President Obama signed into law in February 2009, acted promptly to forcibly recapitalise banks, and the Federal Reserve started quantitative easing (QE) in December 2008. As Washington politics dulled the capacity to use fiscal policy, the Fed was left as the only agency of macroeconomic stability.

By and large, it has done a good job, even if QE has had consequences that weren’t necessarily intended. But ten years on, the Fed faces an uncertain future. We knew this before the surprise resignation of Vice Chair, and second in command, Stanley Fischer last week, but his imminent departure has illuminated the problem anew.

Fischer will be a big loss. He had a stellar reputation as an academic and practical economist and central banker. He governed the Bank of Israel from 2005-13. On monetary policy, he was somewhat on the hawkish side of the Federal Reserves’s policy making committee, but was adamant about not succumbing to political pressures for financial deregulation…..