All the staff were disloyal

Kevin Hassett writes in Bloomberg about how the new openness at the Federal Reserve has exposed disturbing differences of opinion between the staff and board members.

In the past, the U.S. Federal Reserve operated under a cloak of secrecy. Today, the deliberations and forecasts of the members are available to the public in a timely fashion.

Yet this new visibility may well be generating an unintended side effect: The public, which used to believe in the omniscience of "Maestro" Alan Greenspan and his brethren, is learning how imperfect the stewards of monetary policy really are.
This was always apparent to insiders.
...
While I was there, many of the governors weren't trained economists and often seemed distrustful of the staff, treating our outlook with derision and promulgating their own views. Those views revealed at times a startling ignorance in the board member, but nonetheless influenced policy.

Such a dynamic is doubtlessly replayed on Wall Street every day, where traders without economic training have strong intuitive opinions that can move them to ignore the views of the firm's economists.

Were the governors who disdained the work of the staff correct to do so? A fascinating new paper by economists Christina and David Romer at the University of California at Berkeley suggests that on the contrary the board members' forecasts were worthless.

The authors conclude: "Someone wishing to predict actual inflation and unemployment who had access to the forecasts of both the FOMC and the staff would be well served by throwing away the FOMC forecast and just using the staff predictions."

This makes the Captain Queeg analogy in last year's An interview with Alan Greenspan all the more relevant.

Interesting...