The Fed Claims to Be “Data-Driven,” but the Data Is Flawed

As another month of steady interest rates passes by, the Fed’s favorite claim– that the central bank is “data-dependent”– continues to be made. This claim, of course, is not true. The Fed’s actions are dictated by incentives and pressures that favor cheap credit, not objective data.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

It’s been a big week for “the data.” At Wednesday’s FOMC press conference, Fed Chair Jerome Powell announced that the Fed was holding its policy interest rate steady at the current 4.5 percent. Powell noted that there was no need to cut the rate because the job market is “solid.” Powell engaged in the usual song and dance of declaring that the Federal Reserve’s monetary policy is data-driven or “data-dependent” and assured the attending members of the press that FOMC policy is carefully implemented in accordance with federal employment data (among other data points). 

Then, less than 48 hours later, the Bureau of Labor Statistics (BLS) released its July report which revealed that the “solid” job numbers the Fed had allegedly been using for the past two months were actually very wrong. The Bureau of Labor Statistics had greatly overestimated job growth in its earlier reports for May and June. Then, mere hours after the BLS numbers went public, President Trump announced he was firing the head of the Bureau of Labor Statistics. But, he wasn’t firing her because the agency’s data has been initially wrong. Trump was firing her because Trump thought the revised BLS data was too low and made him look bad.