On the Record From 2000: Fed Got the Signals Wrong

Alan Greenspan wasn't exactly prescient as Fed chairman in December 2000. (By Ray Lustig -- The Washington Post)

In other words, leveling with the public is a good idea -- except when it means telling people something they don't want to hear.

We also learned yesterday that "transparency" doesn't mean telling the truth about what members of its policy committee actually think. Although the transcripts of several meetings reveal pretty sharp differences of opinions about what to do next, the members maintained the quaint tradition of recording all votes as unanimous.

Reading through the other transcripts, several other conclusions spring to mind.

One is that, despite all the new-economy talk, the Fed continues to put too much emphasis on old-economy variables like inventories and industrial capacity, and not anywhere near enough on the impact of financial flows and asset prices on the behavior of businesses and consumers.

The transcripts also reveal the Fed to be totally cowed by Wall Street, reluctant to get ahead of the market and too reliant on corporate profit forecasts of equity analysts who, we know now, were nothing more than marketing agents for underwriters and investment bankers.

There's also way too much attention paid to labor market conditions, which are about as lagging as lagging indicators get. There ought to be plaque on the wall of the Fed's meeting room that says: "If you're waiting for the unemployment rate to tell you what to do, it's already too late."

Steven Pearlstein will host a Web discussion today at 11 a.m. at washingtonpost.com. He can be reached atpearlsteins@washpost.com.