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November 3, 2006
Fed Admits Data and Rate Mistakes

Richard Fisher of the Dallas Federal Reserve says bad data led to Fed rate mistakes over the last five years. He says the Fed held rates too low for too long, leading to wild price swings.

"[P]oor data," Fisher says, "led to a policy action that amplified speculative activity in the housing and other markets."
Markets like oil. In August I wrote in The Wall Street Journal that the spike in energy prices is mostly a function of the Fed's inflationary monetary policy, which is also the key factor in swings across the global economy, from cattle prices to home values to the spike in Chinese foreign reserves.

Referring to the CPI and PCE price indeces, which constantly disappoint, Fisher says, "The point is ... we need better data." But we've already got much better data -- right in our grasp. This data streams across our Bloomberg screens and CNBC tickers every moment of every day. In real time. The data is called the price of commodities, the value of the dollar, bond yields (somewhat less useful), and most importantly, the price of gold. It's real time market data. No sampling. No revisions. No lags.

Fisher is correct the Fed created the current inflation and that we need "better data." But he doesn't mention that the simple solution is right in front of us.

-Bret Swanson

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