Size Doesn't Matter
Updated 11:12 AM ET July 31, 2000
WASHINGTON (Reuters) - Toss aside the theory that the size of Alan
Greenspan's briefcase on the day of a Federal Reserve meeting indicates what will
happen to interest rates.
It's the quality -- not quantity -- of its contents that counts in the central bank's
decision, the Federal Reserve Bank of St. Louis said in the July issue of its quarterly
magazine.
"It's not the size of the briefcase that matters, but the type and quality of the
information found inside," St. Louis Fed vice president William Gavin and research
associate Rachel Mandal said.
Desperate for clues on the direction of interest rates, some traders look at how
stuffed Fed Chairman Greenspan's briefcase is as he enters rate-setting meetings.
The theory goes that if the briefcase is packed, rates will go up. If it's slim, rates will
either remain unchanged or will fall.
Some television networks even cut into their regular programming to carry live shots
of Greenspan hurrying to the meeting, briefcase in hand. Financial web sites display
pictures of the chairman's briefcase on the day of the meeting.
But Gavin and Mandal point out that the briefcase Greenspan carried to the May
meeting was "reportedly the thinnest in years" and yet Fed officials raised interest
rates by half-a-percentage point, the sharpest increase in five years.
Gavil and Mandal's advice? Drop the briefcase barometer and go back to the
statistics that Greenspan, a well-known data nerd, likes to look at for clues on the
economic outlook: gross domestic product, personal consumption expenditures, the
consumer price index and even supplier deliveries. |
