I updated the “In closing” section above the paywall based on a reader’s question. I explain more clearly why the “do nothing” to the dot plot would be the best action for the Fed this week. I am a long-standing critic of the dot plot as a communication tool, but the Fed’s current hyper-data-driven approach makes the dot plot even more problematic.
The dots are meaningless with a data dependent fed. The Fed needs to cut back a bit on the transparency. Press conferences after the meetings are enough, along with the bank presidents and governors speaking. It would be helpful if fomc members would dissent more often when they disagree. A good first step would be to have a dot plot for the next 3 meetings. After a reasonable amount of time just eliminate them. I heard a central banker state that monetary policy was best done in an iterative fashion. I cannot understand why the fomc would not cut 1/4 now and wait. It's pretty clear they want to cut. So get on with it. If the data is not as good as expected just put policy on hold.
“Basically, we are set up for another example of why I hate the dots. A handful of people anonymously, with no review of their thinking, no accountability, and possibly not even voting this year, could increase the interest rates to buy a home or open a business almost immediately via the market reaction to the dots.”
Cripes, can someone buy these people backgammon sets? Then, the can play with ‘dots’ and do no harm.
No. The Fed should not do nothing. It should stop, should renounce, the practice of speculation about future settings of policy instruments. The polic setting at time t shour depend on the situation at time t not on what at some time in the past it THOUHGT" the policy instrument setting would be.
I am persuaded that it delayed increasing the EFFR from Sept. 2021 to March 2022 because it had not pre-announced the change.
The dots are meaningless with a data dependent fed. The Fed needs to cut back a bit on the transparency. Press conferences after the meetings are enough, along with the bank presidents and governors speaking. It would be helpful if fomc members would dissent more often when they disagree. A good first step would be to have a dot plot for the next 3 meetings. After a reasonable amount of time just eliminate them. I heard a central banker state that monetary policy was best done in an iterative fashion. I cannot understand why the fomc would not cut 1/4 now and wait. It's pretty clear they want to cut. So get on with it. If the data is not as good as expected just put policy on hold.
“Basically, we are set up for another example of why I hate the dots. A handful of people anonymously, with no review of their thinking, no accountability, and possibly not even voting this year, could increase the interest rates to buy a home or open a business almost immediately via the market reaction to the dots.”
Cripes, can someone buy these people backgammon sets? Then, the can play with ‘dots’ and do no harm.
No. The Fed should not do nothing. It should stop, should renounce, the practice of speculation about future settings of policy instruments. The polic setting at time t shour depend on the situation at time t not on what at some time in the past it THOUHGT" the policy instrument setting would be.
I am persuaded that it delayed increasing the EFFR from Sept. 2021 to March 2022 because it had not pre-announced the change.
It wouldn't surprise me at this point that the first rate cuts won't occur until September.