Central Banks

Criticism of Fed doesn't bode well for the next financial crash, former Vice Chair Fischer warns

Key Points
  • Former Federal Reserve Vice Chair Stanley Fischer says the criticism is much more serious in this current environment than in previous eras.
  • Fischer, who stepped down in September 2017, says the Fed's lender of last resort function had been reduced by Congress in the Dodd–Frank Wall Street Reform and Consumer Protection Act.
  • There have been multiple reports that Trump is not happy with Fed Chair Jerome Powell.
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Former Federal Reserve Vice Chair Stanley Fischer said Tuesday that criticism of the central bank would only cause more uncertainty and accentuate any financial crash that hits the U.S. economy.

In a direct nod to President Donald Trump's continued comments on monetary policy and Fed Chair Jerome Powell, Fischer said the criticism is more serious in this current environment than in previous eras.

"It becomes much more important in the fact that the chairman of the Fed is nominated for only a four-year term — that's what Jay Powell has. And the next nomination, if the president wins the election, would be by the president," he told an audience at the European Central Bank's annual forum in Sintra, Portugal, on Tuesday.

"And that would produce a very different monetary policy. And when that happens there will be a lot of questions to ask," he added, mentioning the liquidity loans that were provided by the U.S. central bank in the 2008 crash.

Fischer, who stepped down in September 2017, said the Fed's lender-of-last-resort function had been reduced by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and it now had less freedom to make emergency loans in times of financial stress.

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"I find this very bothersome. Some of the people I know in the Fed say that, 'Well, when the crisis comes the government won't have the guts not to provide the money that we request.' Great statement, but this government has had the guts to do a lot of things that a lot of governments haven't done before," he told the audience.

"And introducing that level of uncertainty into the handling of a financial crisis is not a good idea, but it is likely to be what happens."

There have been multiple reports that Trump is not happy with Powell, and a Bloomberg News report Tuesday morning said the White House had looked at demoting him back in February. The Fed chair himself has pushed back on the notion of being removed from his post, saying that he can be dismissed only for cause.

Trump's criticism has centered on the Fed's raising of interest rates. The central bank approved four hikes in 2018, though markets expect up to three cuts by the end of 2019.

— CNBC's Jeff Cox contributed to this article.