How Did the Fed Get It So Wrong?: Greenberg

With Friday’s strong employment and manufacturing numbers, the most obvious question (to me, at least!): How did the Fed get it so wrong?

United States Federal Reserve
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United States Federal Reserve

Here we are, barely two weeks since the newly transparent Fed said it intends to keep rates low until at least 2014 — up from 2013 — yet the word out of the real world: Things aren’t necessarily so bad and, in fact, are getting better.

The disconnect is beyond obvious.

So — how can the Fed say one thing and the economy say another?

Fed Chief Ben Bernanke is fond of reminding people that monetary policyworks with a lag.

Indeed it does: Back in the late 1980s I was meeting with the then-President of the San Francisco Fed.

I was telling him how people were having trouble relocating to San Francisco because of the then skyrocketing housing prices (which, ironically, today seems like a bargain.) He looked at me quizzically and said, “Really?” Then he said, “Yes, as a matter of fact, I’ve been hearing that from some of our own people.”

Key point: It wasn’t in the numbers until it was — and a housing bust in Northern California caught the Fedby surprise.

Same case here — only in reverse?

I have my doubts, but if the Fed is always looking in the rearview mirror, it’s no wonder the economy always seems to be so screwed up.

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