The First Amendment gives everyone the right to free speech and assembly.  This means that it is just fine to criticize government.  Especially during the last year, a favorite sport among financial pundits has been second-guessing the Fed.

Discussing policy can be fun, but it is not the road to investment returns.  It is much better to study and to understand.  If we pay attention, we can make some successful predictions.

Criticizing the Fed

Barry Ritholtz  has some sharp words for what he calls "the Fed's Folly".  He asks,  "Was it a misunderstanding of their mandate, inexperience, or just plain hubris?"

He goes on to describe his personal interpretation of the Fed's mandate and characterizes the Fed move as panic.  In addition, since we now all know that there was some SocGen selling on Monday to cover for the rogue trader, Ritholtz claims that the Fed move was unnecessary.

We would be most interested in what some of the technical experts think would have happened on Tuesday and Wednesday in the absence of Fed action.  Does anyone really believe that the markets would have suddenly calmed when the rogue trader story came out two days later?

But why speculate?  Let us learn what the Fed members themselves think about their dual mandate and how it is affected by "financial disruptions."  That will help us to understand their actions.

Two weeks ago Governor Frederic Mishkin spoke on precisely this topic.  He stated as follows:

In particular, the Congress has given the Federal Reserve a specific mandate (often referred to as the dual mandate) of fostering the objectives of price stability and maximum employment. Therefore, when the economy faces a disruption in financial markets, monetary policy must aim at balancing the risks to both economic growth and inflation. In the remainder of this speech, I will elaborate a bit further about why financial market disruptions can pose significant risks to the macroeconomy.