mage clip from Fox News via a Tweet posted below.

Diversity? There is None

Notice that ECB staff are European - it is a condition for employment.

In contrast, a very high percentage (maybe 20%) of Fed Board economists are foreigners. Many are great.

But it's also worth thinking if there are Americans that can do that job, and how it affects policy. https://t.co/vQ9IBlDJv5

— Joseph Wang (@FedGuy12) May 13, 2022

There is no diversity where it matters, that being diversity of ideas.

Diversity at the ECB

At the ECB, you better be gung-ho pro-EU. You better believe negative interest rates are a good idea. And you must back the idea that targeting 2% inflation makes sense.

Finally, if somehow you find yourself at the ECB disagreeing with any of those things, you are expected to shut your mouth so the consensus view never shows any dissent.

Diversity at the Fed

Take a look at the lead chart. 

Interestingly, it's also from Joseph Wang, formerly a top QE trader for the Fed.

I remember from my private sector experience - in biglaw, the partner will know smoke you in any aspect of law. In a credit analysis shop, the senior analyst will know the issuers and their structures inside and out.

That makes sense - biz would fail otherwise. 2/

— Joseph Wang (@FedGuy12) May 8, 2022

Why the Fed Fails 

This creates a culture where anyone with talent or ambition GTFO ASAP. There are exceptions, but those who rise tend to be those who have no where else go. It's a weird structure where the higher you go, the more incompetent you are.

So it's no surprise Fed is failing

— Joseph Wang (@FedGuy12) May 8, 2022

Key Ideas 

• At FRBNY, I recall the people who ran Treasury markets, money markets, etc. literally had no relevant experience or expertise. The job of staff was to make them appear competent, but it didn't really matter what they did because Fed can't fail and they can't get fired.  
• This creates a culture where anyone with talent or ambition GTFO ASAP. There are exceptions, but those who rise tend to be those who have no where else go. It's a weird structure where the higher you go, the more incompetent you are.
• So it's no surprise Fed is failing

Diversity in Practice

Contrary to popular myth, diversity is not about race, sex, or age. It's about ideas. 

While there may be some diversity of thought at the lower levels there is none at the high levels.  

To rise up at the Fed you have to eat, think and breathe asinine economic theory. 

Questions of the Day

Q: Why are there no Austrian economists on the Fed? Why are there no gold advocates at the Fed? No sound money advocates? No free marketers? 
A: Because if you believe in any of those ideas you cannot possibly get promoted. 

So the Fed and ECB pretend to be diverse. They set goals for women and minorities. But the women and minorities better think like all of the good ole boys or they aren't qualified. 

Trained to Be Stupid 

It takes years of training to be as stupid as the nitwits on the Fed. 

The notion that the economy can be steered like a truck by a group of group-think wizards with no real world experience is amazing in and of itself.

Everyone of the upper-echelon clowns believes in inflation expectations, the Phillips Curve, and central planning. 

If the Fed proposed to know the correct price of orange juice, everyone would shake their heads in disbelief.

But is it really harder to set the price of OJ from crop reports than to set interest rate policy that will steer the economy to continual growth?

Attempts to steer the economy based on lagging and incomplete data is not much if any better than failed Soviet-style central planning. 

Yet Another Fed Study Concludes Phillips Curve is Nonsense

The Phillips Curve, an economic model developed by A. W. Phillips purports that inflation and unemployment have a stable and inverse relationship.

This has been a fundamental guiding economic theory used by the Fed for decades to set interest rates. Various studies have proven the theory is bogus, yet proponents keep believing.

For example, in March of 2017, Janet Yellen commented the "Phillips Curve is Alive“.

On August 29, 2017 I noted that a Fed Study Shows Phillips Curve Is Useless. Yet, economists keep trying.

In January of 2019, a second Fed study asks Does Ultra-Low Unemployment Spur Rapid Wage Growth?

Here was the conclusion: A careful look at the wage Phillips curve across states yields little evidence supporting the contention that wage growth sharply rises as the labor market reaches especially tight conditions. 

People might point to today and say, "see it work", in reality it "works" about 50% of the time, on a random basis. 

That's not working.

What About Inflation Expectations?

Inflation Expectations data from New York Fed, chart by Mish

Fed Presidents also believe in inflation expectations. The theory is that if people expect prices going to go up they hoard things and demand wage hikes.

Conversely, if people expect prices to drop, theory says people will stop buying things.

Amusingly, a Fed study concludes inflation expectations are nonsense. 

The study concluded

• Most standard tests of the new-Keynesian Phillips curve suffer from such severe potential misspecification issues or such profound weak identification problems as to provide no evidence one way or the other regarding the importance of expectations (much the same statement applies to empirical tests that use survey measures of expected inflation).
• What little we know about firms’ price-setting behavior suggests that many tend to respond to cost increases only when they actually show up and are visible to their customers, rather than in a preemptive fashion. 

Despite Fed's own studies debunking two of the most ridiculous ideas the Fed has, every Fed president harps about inflation expectations.

Amusingly, any bit of common sense should lead any reasonable person to conclude expectations are nonsense.

Q: If consumers think the price of gas will drop, will they stop driving?

Q: If consumers think the price of rent will drop, will they hold off renting until that happens? Will they rent two apartments if they expect the price to rise?

Q: Will consumers delay medical services if they think prices will drop? Will they have two operations if they think prices will rise?​

Asset Price Expectations

• People do buy stocks it they believe prices will rise. They avoid stocks or sell them if they expect prices will drop.
• People will stretch to buy a home if they expect prices to rise. They wait if they expect prices will drop.

Note that every member of the Fed talks about expectations that don't matter ignoring those that do matter.

And not only does the Fed ignore asset price expectations, they ignore asset prices totally. That's how you get three enormous bubbles in 20 years.

Inflation Expectations Are Unglued

For further discussion, please see Hello Fed, Inflation Expectations Are Unglued, No Longer Well Anchored

It's a good thing for the Fed that expectations don't matter. 

But it's a very bad thing that the Fed will act on nonsense that it believes, simultaneously ignoring asset bubbles that were improperly not counted as part of inflation.

Unfortunately, this is why we are where we are. 

As additional food for thought, please see Tweets of the Day: The Fed's Policy Is to Hurt and Credit Words of Warning