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July 25, 2008

Please Keep Speculating….

I spend much of my time planning educational programs emphasizing the Fed’s role in your daily lives. But perhaps what you may not fully appreciate is your importance to the Fed. No, this is not a cheap trick to have you post comments (alright – maybe a little).

Think about speculators. Wade recently posted comments on the criticism focused on these folks who take risks in hopes of receiving a gain. Taking risks involves interpreting information and then weighing the costs and benefits. In essence, economics is learning how to judge costs versus benefits more effectively.

Herein lies the wonder of speculators – Many of them trade on public exchanges, in dozens of languages, on laptops, in university libraries, at retirement homes or on fancy boards at the Chicago Board of Trade. If assumed to be rational, the sum of all these traders’ calculated bets should be a good source of judgment on information. Instead of criticizing them, perhaps we should view them as careful arbiters of information for hints on what is really happening.

Now I know you’re thinking – How do I fit into all this? Well, here at the Fed, we interpret and judge the overall health of the economy. The only hiccup is that maybe we don’t just interpret and judge information. We have the power to create information by setting monetary policy and then releasing information about our policy discussions. You have access to much of the same data and can “speculate” about what we should do. The difference is your actions don’t change expectations about what will happen. So, are you perhaps a more objective arbiter of information than the Fed? Should the Fed look to you for some hints….

…. Happy Speculating…

By: Cindy

Posted by Cindy at July 25, 2008 3:52 PM

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My guess is that a single person, even if he/she can be objective, probably can’t speculate as well as the Fed, with its staff of economists and researchers, can. However, I do think it is good practice for people to understand some of the factors and processes that the Fed goes through when evaluating the state of the economy. (Participate in Fed Chal!) If people did speculate themselves more often, it might help against them needlessly (possibly even harmfully) overreacting to certain things the Fed says or does; it'd be putting things into perspective.

Also, can anyone really evaluate the economy or what the Fed should do objectively? People still bring their personal opinions or preferences into their speculations. That’s what makes arguing at a mock-FOMC meeting fun—-we’re all looking at the same data, yet there’s still some persuading and debating that needs to be done.

Posted by: Fed Chal participant at July 25, 2008 5:58 PM

Very educating post, saved the blog in hopes to read more information!

Posted by: Denita Morgenroth at November 3, 2011 12:41 PM

I admit, I have not been on marginalthoughts.chicagofedblogs.org in a long time however it was another joy to see It is such an important topic and ignored by so many, even professionals. I thank you to help making people more aware of possible issues.

Posted by: viking repair at June 20, 2012 3:04 PM

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