JP Morgan’s Michael Feroli says, in the words
of the WSJ’s Real Time Economics blog, that all Fed politics is local. Which
Federal Reserve banks wanted a cut in the discount rate? The ones where housing
prices were looking weak. The Federal Reserve Banks with strong housing markets,
on the other hand, didn’t want a cut in the discount rate. Here’s David
Altig’s version of Feroli’s chart:
It’s cute. But Altig isn’t impressed. He points out that "Federal
Reserve Bank districts are a bit larger than the cities in which they are based,"
and asks:
What do you suppose happens if I take Feroli’s chart and replace
Atlanta with Miami (the residents of which have exactly the same claim on
the attentions of the Atlanta Fed as those who live in Georgia)?
You can click
through to his blog entry if you don’t know the answer. And Altig has to
say that he treats Miami with exactly the same amount of attention as he treats
Atlanta: he is director
of research at the Federal Reserve Bank of Atlanta, after all.
But I still suspect that Feroli might be on to something. After
all, if it was that easy to treat all parts of the country equally, there would
be no need to have separate Federal Reserve banks at all: everything could (and
probably should) be centralized in Washington. The idea, of course, with the
system as it stands is that if you’re located in a certain place you’ll be more
attuned to what’s going on there. And clearly, if you’re based in Atlanta you’re
naturally going to be more attuned to what’s going on in Atlanta than you will
be to what’s going on in Miami. You can try to keep everything econometric and
objective as much as possible, but as Alan Greenspan has been saying ad
nauseam of late, economics often comes from gut feelings, and you get gut
feelings not only from looking at numbers but also from overhearing conversations
about house prices.