Mark Thoma rolls out a new "Fed Watch" feature, starring his colleague Tim Duy. Much of what Professor Duy says makes perfect sense to me, but -- brace yourself -- I don't agree with this statement:
Read the speeches of Fed officials, particularly Board members. Speeches from District Bank Presidents may be interesting and insightful, but policy is made in Washington (New York is the exception to this rule).
My former Fed colleague Ed Green once argued that three of the most important "big ideas" related to modern monetary policy were monetarism, rational expectations, and the primacy of price stability as a policy objective. In each case, these ideas were championed -- often with much resistance from the places where "policy is made" -- by a Federal Reserve Bank: St. Louis in the case of monetarism, Minneapolis in the case of rational expectations, Cleveland in the case of price stability. (A personal note: It was exactly the thrill of being a part of the chorus crying in the wilderness, for an idea that seemed manifestly correct, that convinced me, in 1989, that the Cleveland Fed was where I wanted to be.)
It won't surprise you to hear that I think Ed is 100% on the money. In my opinion, the suggestion that the speeches of Bank presidents are little more than intellectual curiosities reveals a misunderstanding of how really crucial ideas that start outside of the central bank enter the consciousness of decisionmakers, and eventually come to drive monetary policy.
One other thing. If you check the record, you will find that most dissents come from non-New York District Bank presidents, at least in the Greenspan years. If you think such things might be important, the Board and the New York Fed are the last places you want to look.