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Fischer at Fed May Thrill Economists, Annoy Yellen

NEW YORK (TheStreet) -- Stanley Fischer, the man credited with successfully guiding Israel's economy through the global recession, would add gravitas, leadership and insight if appointed to the No. 2 position at the Federal Reserve. It may also unnerve Janet Yellen, the incoming Fed chief.

Yellen might want to know why President Obama saw the need to add someone with the stature of the former Bank of Israel Governor to watch over the economy along with her, said Morgan Stanley in an investor report published Wednesday. A possible Fischer appointment to the Fed was first reported by Israel's Channel 2 television.

Fischer, who holds dual citizenship in Israel and the U.S., has been involved in the highest level of international economy policymaking for three decades. Hiring him to serve at the Fed would constitute "great news," said Morgan Stanley economics analyst Vincent Reinhart. Fischer, 70, worked for eight years as First Managing Director of the International Monetary Fund, worked in the Clinton Treasury, Citicorp as well as the World Bank.

Fischer headed the Bank of Israel for nearly eight years, stepping down in June after being widely commended for steering the country through the recession. He is known as being practical, not particularly rooted to either the generalized economic camps of 'hawk' or 'dove,' though Reinhart emphasizes that Fischer has "expressed skepticism" about quantitative easing, the defining policy of the central bank under outgoing Chairman Ben Bernanke.

But policy aside, Janet Yellen "has to wonder about the signal" the Obama people are sending both her and global investors by tapping Fischer to serve as her No. 2. Would hiring Fischer all but set her up to failure? If the economy doesn't turnaround over the next 18 months, might the naysayers clamor for Yellen's removal, knowing the bank might have a convenient chief-in-waiting?

A Yellen-Fischer combo would likely make for a world-class institution, but the Obama Administratin would have to clarify its intent, Reinhart says. Democrats who actively supported Yellen over Larry Summers, Obama's former economics policy advisor, would want to know that a man "carrying the baggage of eight years of IMF policy decisions will serve in a supporting position to the chairwoman they so dearly wanted."

Yellen would probably like an explanation too.

--Written by Leon Lazaroff in New York.

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