Reflections of a professional life-long fed watcher

Policymaking at the Fed and Fed watching by the markets have changed dramatically over the past 30 years. In the 1970s, targets and instruments shifted constantly, and the prevalent belief in the Fed was that its deliberations should be as opaque as possible. Moreover, communications technology for those who would divine the Fed's direction was limited to snail mail, faxes, and telephones. In the early 1980s, the Fed began to focus more directly on inflation and on increasing transparency. The future is likely to reveal continued restrictive Fed policy and an inverted yield curve due to eight factors that contribute to this "conundrum." Diversification away from the dollar by foreign central banks is likely to put continued pressure on the value of the dollar and some modest upward pressure on inflation and interest rates, but a dollar meltdown is unlikely. Despite this relatively benign outlook, however, Fed watchers will continue to be busy and valued. © National Association for Business Economics 2006.