Aug. 26--For better or worse, whether or not the interest rate cut accomplishes anything and whether it brings strength or weakness, one thing is clear: yesterday, she did it. Karnit Flug took action as the Governor of the Bank of Israel, putting herself on center stage, saying, "I'm here. I make the decisions. I'm doing what I think needs to be done, even if it's unexpected. I determine the economic agenda. You can't ignore me."
The interest rate announcement was only a small part of Flug's coronation. She played on the surprise -- the general belief that she would not dare to change the interest rate two months in a row. Secondly, this was the first time that Flug herself appeared openly by herself, was photographed and spoke on the record, and was featured on all the media in Israel and overseas following an interest rate decision. She spoke directly to the nation yesterday, above the heads of those who are supposed to listen to her as their economic adviser, i.e. Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid. In essence, she was telling them, "That's enough. I kept silent for a while, but you can't ignore me anymore." To the public, she was saying, "A responsible adult is needed, and I'm the one." In one hour, she became the most quoted economic personality in Israel, and in the world where Israel is concerned.
Flug came back a different person from the annual meeting of central bank governors in Jackson Hole in the US. She is now more media conscious, more public, stronger, willing to break the rules, and change her milktoast image. What happened in Jackson Hole? What influenced her there, where most of the discussion dealt with when the US would start raising the interest rate: whether to wait until late 2015 or start in mid-2015? One thing is clear: she met Stanley Fischer there. That was a conversation, not just a couple of people hobnobbing. Did they talk about the hot weather in Jerusalem? About APCs and Iron Dome? Perhaps. What did Fischer, Flug's former mentor, who recommended her for the job, say to his former deputy? What did the one-time czar of Israel's economy, the sharpest politician Israel has ever had, say to the person who replaced him, who is his exact opposite? We do not know, and we never will know. It was a face-to-face (spectacles-to-spectacles?) meeting.
We do know one thing: the Governor came back early to Israel, in the middle of the conference. She was supposed to land here Sunday night, and to take part before that in the first Bank of Israel interest rate discussion by conference call from the US. Instead, she took an early flight, landed here on Sunday, and went straight into the discussion. She made her announcement the next day.
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