The Federal Reserve System is as independent of politics as any of our government institutions. It hires some of the best economists trained in the top PhD finance and economics programs. Each of the fifteen district banks has its own research department, which produces and analyzes tons of data.
The Federal Reserve Board employs some two hundred and twenty five Ph.Ds. The current Chairman of the Fed, Ben Bernanke, is a leading specialist on monetary policy and the business cycle. His predecessor, Alan Greenspan was universally praised as a master of data analysis. If anyone could see trouble ahead, it was supposed to be Greenspan.
Reading the just-released transcript of the Fed Open Market Committee meeting on December 12, 2006 reminds me of the 9/11 Commission Report. The Fed vaguely identified some of the dots, but not one committee member raised the possibility of a housing collapse.
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