Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

[FRED]

Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation
November 6, 2006 (Wall Street Journal)

In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher's remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

"In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today...the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving...sustainable noninflationary growth."

AntiSpin: Maybe Ben Bernanke really is interested in increasing transparency at the Fed.

But was the error truly a matter of faulty data? Evidence of the housing and other bubbles were obvious for years before the Fed acted by raising interest rates. The Fed is still side-stepping the issue of acting to contain excessive speculation that, as Fisher points out, inflicts "...real costs to millions of homeowners across the country."

[Finster]

Re: Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation
November 6, 2006 (Wall Street Journal)

In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher's remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

"In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today...the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving...sustainable noninflationary growth."

AntiSpin: Maybe Ben Bernanke really is interested in increasing transparency at the Fed.

But was it the error truly a matter of faulty data? Evidence of the housing and other bubbles were obvious for years before the Fed acted by raising interest rates. The Fed is still side-stepping the issue of acting to contain excessive speculation that, as Fisher points out, inflict "...real costs to millions of homeowners across the country."

The Fed has the data it needs, it just refuses to acknowledge inflation when it's staring it in the face. As long as it pretends soaring asset prices are some kind of extra-inflationary phenomena, they will continue to get it wrong.

Moreover, you have to wonder about the breadth and depth of conviction on the part of the FOMC. It's not as if all it could do was wring its hands in despair over having been too easy too long. Of all the FOMC voting members, only one - Jeffery Lacker of the Richmond Fed - voted in favor of further restraint in the last three FOMC official confabs. Not to mention there is no rule that says the Fed can only act at those meetings.

Tough talk is no substitute for decisive action.

[jk]

Re: Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

Tough talk is no substitute for decisive action.

with the fed, tough talk is exactly a substitute for decisive action.

[DemonD]

Re: Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

Goes to back to the debate about the Fed being either incompetent or purposefully crooked.

I'll take a little bit from A, and quite a bit more from B.

[spunky]

Re: Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

I'll take 0 % from A and 100 % from B; the fed is here to serve the men in power and the corporations, not the average american workingman/woman

[SeanO]

Re: Fed Official Says Bad Data Fueled Rate Cuts, Housing Speculation

While not intending to take anything away from the earlier replies, there is ZERO question in my mind that plenty of data is faulty, or at least significantly lagging. I've gotten a first hand view as I have done a deep dive into the foreclosure marketplace. The available data is so poor that it is farcical.

But as pointed out in the anti-spin, you'd think these guys would be competent enough to see the forest through the trees.