Monday, March 24, 2008
Made As Instructed
"Consumer prices in February were unchanged, easing concerns a bit about inflation and paving the way for a substantial interest-rate reduction by the [Fed] next week. 'The pretty result ... will turn ugly' in March as a result of record-setting gas prices and a resurgence in food prices, said Global Insight economist Kenneth Beauchemin in a research note. Still, he said, 'the Fed has been handed a neatly wrapped gift' ahead of its policy meeting Tuesday. ... By indicting inflation isn't surging at the moment, the CPI data make it easier for the Fed to focus on cutting rates to spur economic growth and reduce financial-market risks", my emphasis, WSJ, 15 March 2008.
Beauchamin misses the point in writing, "the Fed has been handed a neatly wrapped gift". The old joke about real estate appraisers is that they are MAI. Members of the Appraisal Institute? No, their work is made as instructed. How convenient for the Fed, to get a CPI statistic that gives it cover to reduce interest rates. This reminds me of somthing my favorite jurist, Oliver Wendell Holmes wrote. He wrote something to the effect that a judge decides which side he wants to win then starts searching the law and the facts to support his decision. That the notion of the disintersted jurist inpartially applying the law is nonsense. Similarly, Helicopter Ben needs a rationale to reduce interest rates, voila, the CPI shows up as unchanged.