Monday, July 31, 2006

Poole's speech unusually clear...

The Fed's William Poole gave a talk on China today. He said the chance of a rate hike next week is 50/50, which is shockingly blunt for a Fed official. He doesn't have a vote this year, so maybe that affords him a bit more freedom to speak frankly.

Probably the best quote out of it was "science takes just so far." There is no black box. It isn't a big adding machine that spits out the "proper" funds rate. The Fed doesn't know exactly what the impact of hiking or cutting or standing still might be. Sometimes they just take their best guess.

3 comments:

Jay said...

Would be nice to see them exercise an ounce of restraint and sit tight, seeing as they readily admit they have no clue what they're doing, and they've been loading the market with hikes that will take another 6-12 months to filter through the economy. Reminds me of economics, where you try to isolate one variable. Unfortunately, the only isolated scenario here has been asking the question, "What happens if I continually increase the Fed Funds rate without stopping?" Sorry, Ben, I'd like to see what happens after a discrete set of hikes, and I'd like to find out before the economy tanks because you didn't wait to find out what happened before hiking again, and again...

Tom G. said...

The market is down to like 8% chance of a hike, so you're going to get your way.

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