Deja Vu All Over Again?

Greg Ip writes today in the Wall Street Journal (page A2 in the print edition) on the seeming disconnect between market expectations and the apparent view from the Federal Open Market Committee:

Federal Reserve officials -- unlike bond investors -- think the economy is a lot sounder today than at the end of 2000 and in early 2001, when the Fed abruptly reversed course and began a string of interest-rate cuts.

Yet Fed Chairman Ben Bernanke's effort to convey the message that today's conditions are different is hampered by the Fed's lack of candor back in 2000.

Well, one man's lack of candor is another man's simply getting the forecast wrong.  And as I remarked yesterday, getting it wrong happens in both directions.  To give the critics their due, however, there are some remarkable similarities between the language of the FOMC then and the language now (or more precisely, as of October when the Committee last met).  The November 2000 press statement, in its entirety"

The Federal Open Market Committee at its meeting today decided to maintain the existing stance of monetary policy, keeping its target for the federal funds rate at 6-1/2 percent.

The utilization of the pool of available workers remains at an unusually high level, and the increase in energy prices, though having limited effect on core measures of prices to date, still harbors the possibility of raising inflation expectations. The Committee, accordingly, continues to see a risk of heightened inflation pressures. However, softening in business and household demand and tightening conditions in financial markets over recent months suggest that the economy could expand for a time at a pace below the productivity-enhanced rate of growth of its potential to produce.

Nonetheless, to date the easing of demand pressures has not been sufficient to warrant a change in the Committee's judgment that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.

And from the minutes of the November 2000 FOMC meeting:

... the members noted that the growth of aggregate demand had moderated appreciably, the prospects for a significant rise in inflation seemed quite limited for the near term, and previous policy tightening actions and the earlier rise in energy prices had not yet exerted their full restraining effects on demand. Nevertheless, in the context of continuing substantial pressures on labor resources and the potential effects of the previous rise in energy prices on inflation expectations, members believed it was necessary to remain on guard for signs of rising inflation over the intermediate term. As a result, they agreed that the statement accompanying the announcement of their decision should continue to indicate that the risks remained weighted mainly in the direction of rising inflation.

Although some of the comments in the Ip article are, I think, just off base...

"The Fed has a mission to put a good spin on things," says Paul McCulley, an economist and fund manager at Pacific Investment Management Co.

... and I don't think I would characterize this as bluster...

"They're paid to worry about inflation, which means that until the slowdown is obvious and undeniable, they will stick to their forecasts," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report last week, citing the similarity to late 2000.

... I'm not inclined to protest too much.  I'll leave it to the sociologists and cognitive psychologists to figure out if being "paid to worry about inflation" somehow systematically biases the forecasts of policymakers.  But just for the sake of argument, let's say it is so.  Taking the long view, the not-so-arguable success of U.S. monetary policy over the past 25 years,  and the memory that it wasn't always so, let me ask this: Would you really have it any other way?