A Fed Held Hostage by Data Is Asking for Trouble
High-frequency inputs on economic activity should inform and influence policymaking, not dominate it.
It wasn’t me.
Photographer: Samuel Corum/Bloomberg
It’s right for economic data to influence the Federal Reserve’s policy approach. Yet, there is an important distinction between being informed by the numbers and being held hostage by them — particularly for an institution whose tools operate on the economy with a lag. Indeed, the Fed’s often-repeated mantra of “ data dependency” risks causing another mistake.
Don’t get me wrong; high-frequency inputs are important in any assessment of economic conditions and policy responses. They give you a sense of how the economy is functioning. They should inform and influence how officials think but not in the absence of a strategic view of our economic prospects.