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The Fed is Surprised
It is cute when children are surprised. Their eyes light up as they discover new information about how the world works. The same sense of surprise is less endearing when it applies to central bankers. Yet,
that seems to be the fashion these days:
Let's take this quote from the minutes of the May 9th meeting:
"The incoming data on new home sales and inventories suggested that the ongoing adjustment in the housing market would probably persist for longer than previously anticipated."
And from the from the August 8th meeting we have:
"developments in mortgage markets during the intermeeting period suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year."
and then on September 18th we find that:
"participants noted that recent data suggested greater weakness in the housing market than had previously been expected"
It is disconcerting to hear that the weakness is the housing market is greater "than had previously been expected" will be "more prolonged than had seemed likely" or would persist longer "than previously anticipated."
The members of the Federal Reserve Board are supposed to be knowledgeable about the economy and therefore should not be continually surprised by events. The fact that they have been repeatedly surprised by the weakness in the housing market raises serious questions about their competence. The Fed's repeated expressions of surprise warrant attention in the media, which they have not yet received.
(Thanks to Tom Schlesinger of the Financial Markets Center for this one.)
--Dean Baker
COMMENTS (7)
The Fed is strong in its use of the English language!
But maybe if it had another Math. major, it would show the real past:
see last chart of
"Real Dow & Real Homes & Personal Saving" at
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
and then predict the real future.
Here we are: the outlook is for price drop, the issue is talking fog vs. figures, and it's FOG FIRST.
Posted by: Ed | October 14, 2007 2:30 PM
Heh,heh...Kinda' like the blind leading the blind; if only they had eyes to see their heads are stuck in the sand.
Posted by: Conor | October 14, 2007 4:44 PM
surprise , surprise , surprise ...
The Gomer Pyle Fed.
Wait til they see the CBOs, CDOs and SIVs !
surprise , surprise , surprise !
Posted by: Michael McKinlay | October 14, 2007 5:07 PM
I always thought the Fed's role was to talk up the economy and do whatever is in the intereests of big financial institutions. They can't go around telling the horrible truth about the housing market. They wouldn't be performing their role correctly.
Posted by: Ponzi Q. Globalization | October 16, 2007 7:48 AM
Incompetence or malfeasance? That is the broad question historians will ask about so many aspects of the Bush years.
If the Fed was to act in the best 'shock doctrine' tradition of the Chicago Boys as described by Naomi Klein, this is what it would do:
"Oops, we did not foresee the housing bubble and so did not exercise our regulatory function over predatory bank lending, and the recession hit.
"Oops, we had to cut rates to easy the pain of recession, and so did not anticipate the resultant oil and dollar dumping inflation.
"Now that both recession and inflation have worsened, Social Security looks dismal even in the short term, and must be partially privatized."
Incompetence or malfeasance? That is the broad question historians will ask about so many aspects of the Bush years.
Posted by: Jonas South | October 17, 2007 10:59 AM
I pretty much just started reading this blog. It's awesome! Please, please, keep up the excellent work.
PS - The housing crunch is affecting the rental markets too. Here in SF alone, rental prices have shot up 11%. Granted, people with rent control are in a decent position.... but, let me tell you, an awful time to be in the market for a rental.
Posted by: Paul | October 19, 2007 11:35 AM
Actually, the dollar is immediately borrowed by the Government and put to use in all the things they do. In a way the Trust Fund is a type of forced savings. The payee eventually gets back the principal with interest when he retires or is disabled. Any kind of retirement savings does the same thing, though private retirement funds obviously invest much more in the private sector.
Posted by: san | April 7, 2008 10:27 PM