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The Fed in Wonderland

The opinions expressed by columnists are their own and do not necessarily represent the views of

It's simple enough to understand the latest pronouncements from the Federal Reserve System and what they portend for future economic policy. Indeed, not since Alan Greenspan was heading the Fed and handing out his Delphic words of wisdom and obfuscation has the Fed's policy been so clear, or opaque, or neither, depending on how you'd like to interpret, misinterpret or just ignore them. The last is always a temptation when encountering Fedfog, a lingo that would make Vedic Sanskrit a breeze.


Consider this typical helping of reservations and qualifications, Ifs and Buts and Then Agains, from William Dudley, president of the Federal Reserve Banks of New York:

"If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect -- in the absence of some dark cloud gathering over the growth outlook -- to support a decision to begin normalizing monetary policy later this year...."

On the other hand, "I can't be completely confident about this forecast. After all, several times during this expansion, we have been fooled by sharp rises in the growth rate that appeared to presage a sustained pick-up, but that subsequently proved fleeting."

But on the third hand....

It's all enough to bring back Harry Truman's wish that for once he'd like to meet a one-handed economist.

It helps to understand Fedspeak if you've read the works of that noted economist Lewis Carroll and his classic guides to the economy, "Through the Looking-Glass, and What Alice Found There" (1871), as well as his other groundbreaking study in modern economics, "Alice's Adventures in Wonderland" (1865). There you'll find the Duchess' to-the-point summary of the proper way to approach economic policy:

"Be what you would seem to be" -- or if you'd like it put more simply -- "Never imagine yourself not to be otherwise than what it might appear to others that what you were or might have been was not otherwise than what you had been would have appeared to them to be otherwise."


But what does all that mean, if anything? Beats me. There are lots of words, words, words and more words there, but do they add up to anything but gibberish? What's more, their meaning keeps changing, just as economic forecasts from the Fed do, but that never seems to bother its prognosticators. Any more than it bothered Humpty Dumpty, who took it upon himself to straighten out poor confused Alice:

" 'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean--neither more nor less.'

" 'The question is,' said Alice, 'whether you can make words mean so many different things.'

" 'The question is,' said Humpty Dumpty, 'which is to be master -- that's all.' "

There you have it in an impossible-to-crack nutshell. Any questions? If so, consult Professor Carroll's "The Hunting of the Snark," which should clear up any remaining doubts -- or aggravate them. As with Fedfog, the reader cannot be sure where the professor's policy recommendations begin, end, are to be continued or exist at all. It's all jabberwocky to me.

It's not easy -- it can be impossible -- to nail down the meaning of the Fed's ever-elastic words. Especially if they keep changing to fit the latest data. For its numbers can be tricky, too. ("Figures don't lie but liars figure.")

Nothing stays the same in this world, and it's quite a job adjusting all those predictions and explanations to fit always changing reality. The Fed has earned our sympathy, but not our trust.


Don't bother to thank me for this handy-dandy clarification/mystification in the guise of a newspaper column. If the fog ever lifts, which it won't where economic policy is concerned, we'll know all about it someday. Or nothing at all.

It was Friedrich August von Hayek, a real-life economist with a real-life perspective on economics who explained: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Q.E.D. 

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