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April 6, 2006
Fed uses industrial data
Recently, the Fed released the transcripts of the 2000 meetings of the Open Market Committee -- the place where the decisions on rates get made. Washington Post business editor and columnist Steven Pearlstein claims he "spent most of the day happily wallowing in the 814 pages." Happy or not, he came away with some interesting insights as to how the Fed really works, including this:
One [conclusion] is that, despite all the new-economy talk, the Fed continues to put too much emphasis on old-economy variables like inventories and industrial capacity, and not anywhere near enough on the impact of financial flows and asset prices on the behavior of businesses and consumers.
So, even at the height of the dot.com bubble the Fed was stuck in an industrial age mindset. I'm both heartened and worried about that. It is good that the Fed didn't succumb to all the hype. On the other hand, we clearly need a new set of economic indicators.
Maybe that can be Chairman Bernanke task - to come up with new ideas as befits the new economy
Posted by Ken Jarboe at April 6, 2006 1:53 PM
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