Bernanke mentor could be Fed’s next No. 2

Stanley Fischer, an internationally-respected economist who most recently led Israel's central bank, is President Obama's top candidate to become the next vice chairman of the Federal Reserve, according to people familiar with the process.

A formal nomination is not yet scheduled, these people say.

If chosen and confirmed by the Senate, Fischer, 70, would succeed Janet Yellen who has been nominated to replace Ben Bernanke next year as Fed chairman.

An economist with broad experience as a policymaker, Fischer resigned as governor of the Bank of Israel in June.

He also has close ties to Bernanke, having taught the current Fed chairman when he was a graduate student at the Massachusetts Institute of Technology.

And Fischer has banking industry experience. He was vice chairman of Citigroup from 2002 to 2005.

Fischer has been the World Bank's chief economist and a deputy managing director of the International Monetary Fund. He also has taught at MIT and headed the Public Sector Group, a management consulting firm.

During Yellen's tenure, the position of vice chair has become more prominent at the Fed. Yellen has been a key advocate of Fed policies to increase the Fed's communication with the public and adopt policies to stimulate economic growth.

Fischer would become Yellen's top lieutenant during a critical period as the Fed prepares to wind down the massive monetary stimulus it has injected into the economy. He has generally supported such growth-boosting policies. As head of the Bank of Israel, he led its bold steps to respond to the global financial crisis, including the purchase of bonds to lower interest rates, a move that also was the centerpiece of the Fed's strategy at the time.

But at least one of his positions has raised eyebrows among some economists. For example, he has criticized "forward guidance," which the Fed has relied on extensively to signal to markets how long it will maintain low interest rates.

In a Wall Street Journal intervi! ew in September, Fischer said, "You can't expect the Fed to spell out what it's going to do. Why? Because it doesn't know. It's a mistake to try and get too precise." He added, "If you give too much forward guidance you do take away flexibility."

Barclays Capital economist Michael Gapen said he interprets his remarks "as reflecting a pragmatic view" to "communicate what you know and can credibly commit to" but avoid confusing investors and "maintain discretion to allow policy to adapt to changing circumstances."