By Greg Ip

Stanley Fischer, one of the most influential economists of recent decades, has died. He was 81. His death was confirmed by the Bank of Israel, where he served as governor from 2005 to 2013.

Fischer served as vice chairman of the Federal Reserve from 2014 to 2017. He left his biggest mark in prior decades, as professor of economics at the Massachusetts Institute of Technology, second in command at the International Monetary Fund, and at the Bank of Israel.

In those roles, Fischer helped shape how an entire generation of central bankers and economic policymakers do their jobs.

Fischer was born in 1943 in Northern Rhodesia (now the independent country of Zambia) and first came to the U.S. in 1966 to get a Ph.D. at MIT.

After several years at the University of Chicago, he joined the faculty of MIT.

In the 1970s, the use of monetary and fiscal policy to steer the economy, as advocated by followers of John Maynard Keynes, was under sustained attack by the theory of rational expectations associated with the University of Chicago's Robert Lucas.

This critique argued that if the central bank lowered interest rates to boost employment, workers would rationally expect higher inflation and demand higher wages, so employers wouldn't increase hiring. Fischer was part of the "New Keynesian" school that showed frictions such as labor contracts prevented this adjustment, so monetary and fiscal policy were still effective. This assumption is now widespread in today's central banks.

Fischer's influence was felt mostly through his teaching, mentorship and writing, including an influential textbook written with fellow MIT professor Rudiger Dornbusch. It "made me see the link between all the math and theory and actual policy with a far greater clarity than I ever had before," Larry Summers, a student of Fischer, and later Treasury Secretary under Bill Clinton and adviser to Barack Obama, said in an interview Sunday.

Fischer's other students included Ben Bernanke, Fed chair from 2006 to 2014; Mario Draghi, president of the European Central Bank from 2011 to 2019; Kazuo Ueda, the current governor of the Bank of Japan; and Olivier Blanchard, an influential macroeconomist and later chief economist at the IMF.

Blanchard once recalled that Fischer and Dornbusch would sometimes ask doctoral students to present their work while running along the Charles River in Cambridge. "When the argument became too involved, Rudi or Stan would accelerate the pace to force the speaker to slow down their presentation."

While serving as first deputy managing director at the IMF -- the de facto number two -- from 1994 to 2001 Fischer was instrumental in putting together, along with the U.S. Treasury, rescues of crisis-stricken emerging countries, including Mexico, Thailand, Indonesia, South Korea and Brazil. He and Summers advocated overwhelming financial force to restore market confidence, conditioned on policy changes to address the cause of the crises.

The high interest rates, liberalized exchange rates, privatization, and fiscal austerity -- later dubbed the "Washington consensus" -- that Fischer and the IMF advocated for emerging countries were later attacked for being ineffective and harmful. They caused "collapsing financial sectors, prohibitively high borrowing costs, widespread social dislocation, and political upheaval," Joseph Stiglitz, chief economist at the World Bank from 1997 to 2000, wrote in 2001.

Fischer himself learned not to trust in a single economic rule for all times and places, such as fixed or floating exchange rates. "The only sure rule is that whatever exchange rate system a country has, it will wish at some times that it had another one," he once remarked.

Fischer worked for Citigroup in the early 2000s before moving to the Bank of Israel, where his term overlapped with that of Prime Minister Benjamin Netanyahu. Palestinian Monetary Authority Chief Jihad Al Wazir told the Journal in 2013 that Fischer skillfully navigated political sensitivities to focus on economic challenges. For example, he helped Palestinian banks cope with shortfalls in foreign aid and occasional freezes in Israeli transfers of tax revenue, and getting cash into the Gaza Strip.

As Fed vice chairman during the last decade, Fischer's influence wasn't always apparent, though he was part of chair Janet Yellen's inner circle. In part that was because Yellen, herself an accomplished academic, had less need for Fischer's intellectual heft. His views also leaned more hawkish -- that is, favoring higher rather than lower interest rates, which occasionally emerged in unscripted moments.

In the summer of 2016, when Yellen was paving the way for a rate increase, Fischer suggested to CNBC that two increases were possible. "It depends on your stomach for excitement," he quipped.

Write to Greg Ip at greg.ip@wsj.com

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June 01, 2025 17:27 ET (21:27 GMT)

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