For the past several weeks much of the attention has focused on the Fed's upcoming December meeting and the first interest rate hike in seven years. So, right or wrong, there's been no shortage of opinions about the Fed's much anticipated actions. Here's another one.
Peter Schiff, the CEO of Euro Pacific Capital, is a controversial financial figure, not so much because his views are always wrong but because he says things MSM and the Fed apologists don't want you to hear.
Schiff recently told CNBC " that the Federal Reserve is playing a 'dangerous game' with benchmark interest rates that is likely to end in tears for stock-market investors.
“I think it is a very dangerous game the Fed is playing because I think the economy is already decelerating…and the Fed still has rates at zero,” Schiff said during the interview.
Long a critic of the Fed, Schiff made comments just after the Fed’s October policy-setting meeting hit the wires, giving "the clearest signals yet that Janet Yellen’s central bank is close to ending a nearly decade long period of ultra loose monetary policy."
He added that "he isn’t convinced that the Fed is prepared to lift rates in December, though Wall Street has priced in a 68% probability of a rate increase next month. He described the Fed’s talk about raising rates as a pretense to mollify investors."
That the Fed is data-paralyzed shouldn't surprise anyone. Fed Chair Janet "Don't-Rock-the-Boat" Yellen is the first female to head up the big outfit lodged in the Eccles Building down on Constitution Avenue. Unless her performance improves drastically in the near future, her term will become a throw-away one, notwithstanding it's historical significance.
Just as there's no shortage of Fed apologists, there is likewise reams of critics. The accuracy of the Fed, let alone the national economic picture, should be obvious based on the number of revisions they undergo quarter after quarter, year after year. The old joke economists have correctly predicted nine of the last two recessions applies to the Fed.
The same holds true for other so-called prognosticating organizations like the IMF and the World Bank. People either forget or overlook the fact that forecasts are just forecasts, nothing more and nothing less. Take the case of biases.
Research has identified numerous instances of persistent bias in the track records of professional forecasters. These findings apply not only to forecasts of growth, but also of inflation and unemployment (Coibion and Gorodnichencko 2012). Overall, the evidence raises doubts about the theory of “rational expectations.” This theory, which is the dominant paradigm in macroeconomics, assumes that peoples’ forecasts exhibit no systematic bias towards optimism or pessimism. Allowing for departures from rational expectations in economic models would be a way to more accurately capture features of real-world behavior.
So as we said: There is no shortage of opinions or biases. And as a colleague used to say after he made a presentation at another one of those stodgy corporate meetings many of us suffered through over the years, "That's my bias. I hope you know yours."
If only all those television talking heads, bureaucrats and members of MSM would stoop to being as candid, we'd all be better off.
And here's one more aside. Both Yellen and Obama are precedent setters. Yellen is the first woman to head up the Fed and he is the first African-American to occupy the White House. Now we know first hand that precedence has nothing to do with competence.
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