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The Eunuch


Just want to put an exclamation point on the retail sales report from this A.M: the core number (ex autos, gas and building matl's) declined by 0.3% m/m and the y/y rate stood at 6.6%.

We bring this up not because this is much of a surprise (as Jeff already suggested the companies had already been reporting such weakness in March) but rather to highlight our yesterday article "FOMC Minutes".

In May of 2000 when the Fed was saying everything was rosy and the only worry was inflation from an increase in demand (lead by both consumers and businesses) this figure had just posted an 8% y/y increase and had been increasing since 1998. Of course, core retail sales y/y growth plunged from 8% to the September 2001 low of 1.1% y/y. How could the Fed possibly miss this? How could they have gotten this (along with the other macro statistics I highlighted yesterday) so catastrophically wrong?

The answer is simple: the Fed is a government bureaucracy that lags trends. What the Fed is worried about is last year's problems, not next year's. Was the US Postal Service the first to come up with overnight delivery? Likewise, the Fed is just as much behind the curve. The only difference is that the Post Office doesn't have an entire cottage industry of sycophants set up to promulgate the idea that the Postal Service is the paragon of virtue, efficiency, and insight in the provision of mail delivery services.

That might come as bitter medicine to all the Fed watchers out there who make a living parsing the 'insights' of Greenspan, Bernanke, Poole, et al. But that doesn't make it any less true.

As an institution, the Fed is a eunuch.
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