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Business Times - 27 Nov 2007


Why read the Fed when it can't read the economy?

By LEON HADAR
WASHINGTON CORRESPONDENT

IN a recent speech in Washington in which he stressed the efforts by the US central bank to become more open and transparent about monetary policy, Federal Reserve chairman Ben Bernanke acknowledged how difficult it would remain for him and his colleagues to make economic predictions. 'The only economic forecast in which I have complete confidence is that the economy will not evolve along the precise path implied by our projections,' he said.

That may sound like an exercise in self-deprecating humour. But it is clear that notwithstanding the commitment by Mr Bernanke to provide more information about the Fed's economic forecasts and deliberations about interest rate policy, deconstructing the Fed's thinking about the economy and predicting its interest-rate decisions would remain a Mission Impossible. One major reason why 'reading' the Fed wou…