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When a Bias Actually Isn’t


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Larry Kudlow

Greenspan and Co. are in the news today. They’re taking another look at something called “policy bias,” which is a strange creature they invented earlier this year. Policy bias supposedly signals the financial markets whether the Fed is leaning towards a tighter (read higher) or looser (read lower) interest rate policy.

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The trouble with this whole shell game is that the Fed changes its mind on a month-to-month basis. As a result, the so-called bias doesn’t really tell the public anything about what the central bank will do. It has been confusing, and has actually increased volatility — driving traders and longer-term investors slightly crazy.

I’m biased against the Fed’s bias. They should bury the bias deep into the junk pile of monetary history.

What they ought to do instead is tell the public what exactly they’re targeting. Believe it or not, the Europeans have actually done a good thing with their central bank: Wim Duisenberg, the head of the Euroland central bank, has publicly announced a zero-to-2% consumer price index target–so at least the Europeans know what their monetary department is up to.

Greenspan has avoided any — any — inflation targets like the plague. Personally, I wish he would target the price of gold and the U.S. dollar exchange rate, but I would take a CPI target as second best. Surely the U.S. public has a right to know: It’s their money. But the Fed won’t tell them. And by the way, the idea that too many people working, producing, and prospering causes inflation is utter Greenspanian gobbledygook. The more things change, the more they stay the same. When will Greenspan stop playing central planner, and just target inflation (which is non-existent anyway)?



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