Thursday, October 14, 2010

HOT: St Louis Fed Out with a Paper on Disagreement at the Fed

Whoa! Check this out as a paper title from the St Louis Fed: Disagreement at the FOMC: The Dissenting Votes Are Just Part of the Story

The paper itself is typical modern day econometric gobbledygook, but it is damn interesting the paper is coming out before one of the most important FOMC meetings ever. More interesting, the paper's conclusion is written in plain English and forecasts greater disagreement at FOMC meetings:

These historical results beg the question: Do we expect there to be much disagreement among today's FOMC members?

Because most of today's FOMC members were not members in the mid-'90s, it's hard to say anything definitive. However, even though the individual effects might be very different now, one can conjecture that the regional effects remain similar. If so, then the results indicate that, as regional variation in the unemployment rates increases, one would expect an increase in the directional disagreement of the FOMC members. Specifically, one might expect those regional bank presidents with unemployment rates higher than the national rate may become increasingly dovish and those with rates below the national rate may become increasingly hawkish. As evidence of such, in Figure 2 we plot the deviation of each regional unemployment rate from the national unemployment rate. As of the June 2010 employment figures, the range of these deviations is the largest it has been for the past 20 years, suggesting that not only might there be considerable disagreement among today's FOMC members, it might be increasing.

Hopefully, that's a good thing.
WTF? Is this a sign of mutiny? Is Bennie losing control? It sure looks like a first shot. The St Louis Fed appears to be setting up to make the Fed a lot more independent of the Chairman. Damn!

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