Garbage In, Garbage Out at the Federal Reserve

From FEE.org (Mar. 14):

Ignorance is Bliss at the Federal Reserve

The Fed’s employees, themselves, are blissfully unaware of changes in the price level of things like, say, food. Danielle DiMartino Booth lists the creature comforts afforded central bank employees in Dallas in her insightful new book Fed Up. In addition to a subsidized cafeteria, there is a separate executive dining room.

DiMartino Booth described how some employees would come early, work out in the Fed’s on-site gym, shower, dress, have breakfast and then “Four hours later they headed to the executive dining room for competitive discourse on the latest iteration of their models over long lunches.”

The ex Wall Streeter and financial journalist took a job at the Dallas Fed as the housing bubble was ramping up. She remembers her days on Wall Street when traders ate expensive steaks at their desks, not wanting to miss any market action.

In contrast, Fed employees, had no interest in financial news. They scattered for lunch. The cafeteria was fine for DiMartino Booth. As she writes, “The food was darn good and so cheap some people even bought dinner to take home to the spouse and kids.”

Job perks at the Fed are impervious to the business cycle, while Wall Street benefits come and go, she explains. And the only “hustle and bustle [at the Fed]: 5 p.m. on the nose.”

DiMartino Booth, with only two master's degrees, worked directly with three dozen PhD economists who didn’t take her seriously, while they ignored financial news.

The economists were satisfied parsing backward-looking data to predict future events using their mathematical models. Financial data in real time were useless to them until it had been “seasonally adjusted,” codified, and extruded into charts.

Richard Fisher, who headed the Dallas Fed at that time, actually talked to business people operating in the real economy. “He had real problems with the Fed’s designated measure of inflation, ‘core’ personal consumption expenditure (PCE), which ignores the prices of food and energy and thus did not reflect inflation’s true level.”

Garbage In, Garbage Out

Meanwhile, the Fed’s PhD army will see what it wants to see and believe what it wants to believe. Trusting the view of someone who has been there, Ms. DiMartino Booth, we should remember the Fed is “an arcane, complex, and peculiar decision-making apparatus that is virtually opaque to outsiders.”

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What we know for sure, is what the Fed does is mislead entrepreneurs with ill-conceived monetary monkey business. Sadly, while they rest on their PhDs, they don’t know what they don’t know.  [read more]

Like most elites, the Fed believes its own fellow elites and doesn’t think it needs outside information that may contradict their own theories.