— Seems like everybody wants to get into the act … St. Louis Fed President Bullard and Fed Governor Waller call for stronger measures to fight inflation.
— Though we value free speech, should the Fed speak with one voice when it comes to monetary policy?
— Are opinions and forecasts based on the “dismal science” of economics really scientific?
— Fed Speak should be left to the chairman.
Everybody wants to get in on the act!
Friday, March 18, the market was treated to the opinions of two FOMC members, James Bullard, St. Louis Fed President and Fed Governor, Christopher Waller, Both were advocating that the Fed should take stronger measures to fight inflation, Bullard stating a move to 3% on the fed funds rate was needed over the next year and Waller advocating 1/2 percent bumps in the rate because “inflation is raging.” (you may need a subscription to CNBC Pro to view) This comes in the wake of a formal Fed policy statement suggesting that six quarter point moves might be necessary over the next year– a majority decision on the part of the entire Fed open market committee.
Should the Fed Speak with one voice?
This is a tough question. On the one hand dissenters on policy have an open forum in the Open Market Committee to argue their positions. This is part of the public record just as dissent on the Supreme Court is part of the public record. Once the decision is rendered that is it. The justices are not out there pleading their dissent to the media.
I’m not so sure that applying the same discipline to Fed Governors might not be a bad idea. As far as free speech goes, I’m for it. The governors’ right to free speech is upheld with their dissents being published in the minutes. Once that is done I believe that their continuing presence in the media and in front of the camera is counterproductive. Why? Because these are contrary opinions that add more uncertainty to an already uncertain economic outlook. It is okay for the pundits, including you and me, to opine on the finer points of economic policy. Our words and opinions don’t quite carry the same import of a Fed official who’s in the room where the policy is made.
Opinions based on ‘dismal science’: How reliable?
More importantly, I maintain economics (the dismal science) and economic forecasting is more of an art than a science. Please, people who practice the dark art, don’t put a contract out on me. I know you are doing the best you can with the information available. I also know the the predicting business is very difficult.
Most of us can predict with great certainty within the constructs of the science of chemistry that when you combine two hydrogen atoms with one oxygen atom you get water. That outcome is universal, happens every time. There are no such formulas in economics for, say, predicting a recession, GDP or employment statistics. There are theories about how the economy works but there is nothing out there so specific as to state that, if you do this amount of, say, deficit spending or monetary ease, you will get a specific result. Yet, there are legions of smart people tasked to do this every day.
All you have to do is to think about the raft of predictions about the economy over the past ten years to realize how many have been incorrect … the warnings of recessions that never came … the warning about disinflation that did not materialize and the warnings of market calamities that never came. If you listened to most of this you would have not been involved in the market.
Economic Prediction and Fed-Speak
In conclusion, economic prediction is very difficult even though there are those who make these predictions or calls daily in a very authoritative way. No matter how convincing they are or loudly they speak, there is no scientific certainty behind any of it. Real world experience tells us this. The Fed deliberates diligently to come up with their policy calls (right or wrong). There would seem to be no need for additional airing of dissenting points of view which add to confusion and uncertainty. Mssrs. Bullard and Waller seem to be grandstanding to affect changes in Fed policy by generating uninformed public alarm and outcry. They should surpress their egos and let the meeting minutes do the talking.
What do you think?
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