The question Fed members are debating now is whether what they’re doing is effective. Ken Kuttner is a former Fed economist, now at Williams College. He says pay attention to the Fed, because if you can decipher all the Fed speak, you’re golden.
“If you were better at reading tea leaves than the next guy and you were able to use that to come up with a better forecast of what the Fed was going to do, that would help you make money,” says Kuttner.
How? Because you could guess when the Fed would, say, not buy as many bonds. Those bonds would lose value, and you wouldn’t want to be caught holding them. Bob McTeer is a former president of the Dallas Fed. He says the Fed tea leaves can tell you about broad economic trends.
“There’s a lot of information out there that’s like canaries in the coal mine,” McTeer explains. “You want something that they’ve noticed that hasn’t yet made it into the statistics.”
McTeer says Fed watching is a spectator sport. Like football for people in the money business — with a nice payoff if you understand the coach’s complicated plays.
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