Wednesday, October 5, 2016

Pretense of Data Dependence

Drawn into the stream 
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

The Fed often claims that it is 'data dependent,' meaning that it grounds its decisions in economic data. Onlookers know that this is pretense, given, for example, the chasm between largely benign reported macro data that the Fed purports to follow and the extreme nature of monetary policy.

Instead, the Fed's behavior reflects selective reasoning. It hangs its hat on data that fit the institution's view of the world while discarding contradictory data.

Stated differently, whether the Fed is data dependent depends on the data.

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