Jeffrey Shafer, who helped recruit Fischer to Citigroup (C) last decade, said he doesn’t believe appointing Fischer “undercuts the choice” of Yellen at all.
“I’m sure they would not have done this without her blessing. I think it says something about Janet that she is comfortable with someone on her team with his eminence. I think they will get along and make a very good team,” said Shafer, who previously worked at the Fed and the Treasury Department.
From a philosophical perspective, Fischer and Yellen have far more to agree on than not.
They have both been supporters of the Fed’s controversial $85 billion bond buying exercise and super low interest rates. In fact, Fischer oversaw a QE program of his own at the Bank of Israel.
“We see little daylight between Fischer and the current core FOMC leadership with respect to their basic paradigm for thinking about the economy,” Goldman Sachs (GS) economists Jon Hatzius and Kris Dawsey wrote in a note to clients this week.
While Fischer is skeptical about calendar-based forward guidance, Yellen has been one of its biggest proponents. As the Fed begins to dial back QE, it is expected to lean heavily on forward guidance, which indicates the expected path of monetary policy in the future.
Still, this isn’t seen as a major stumbling block for the likely new Fed leadership.
“We have little doubt that Yellen and Fischer would see eye to eye on the need to prevent a large tightening of financial conditions anytime soon, so the slightly greater uncertainty that might result from his nomination is mainly about tactics, not strategy,” Hatzius and Dawsey wrote.