Angell WSJ Op-ed
Jude Wanniski
April 22, 2005


From: Jude Wanniski  <        
To:      Ben.S.Bernanke@ * * * * *.GOV                                               
Subject: Re Angell
3:26 pm, 4/22/2005

Ben... No response necessary. Just thought you would like to see the back-and-forth on my staff re Angell's piece in the WSJ


Hoffmeister has the graph you suggested and two others. I'll send them along later after I ponder them.


From: "Wayne Jett" <* * * * *>
To: "Jude Wanniski" <>
Subject: Re: angell
Date: Fri, 22 Apr 2005 09:04:29 -0700

One of the notable aspects of his piece is his generosity towards the Fed, crediting the Fed's genius for the fact that WA perceives his commodity price change index to be at zero. Two things about that: (1) it is WA, not the Fed, that has designed, applied and reported the index showing we're at zero; and (2) his graph shows that each time the index has hit zero, it has rocketed through to another extreme high or low. Not grounds for crediting the Fed with much acumen, in my book. Plus, we have BB's own account that the open market desk is looking only at how much money the banks will want to borrow each night as its guide to how much liquidity to add or drain each day. W

----- Original Message -----
From: "Jude Wanniski" <>
To: "Wayne Jett" <* * * * *>
Sent: Friday, April 22, 2005 8:17 AM
Subject: Re: angell


Thanks Wayne. As Paul says, at least we have another dove in our camp, although his analytics are not helpful. He does seem to think that raising the ff rate is what got us to this bliss point, where we could stop. And he doesn't explain why he figures an unweighted basket of commodities is best for guiding the Fed's ff manipulations. And the whole regime is in the spot market. There is no time sense or consideration of the importance of a fixed unit of account. I've known Wayne since 1984 and have seen him come up with all kinds of ex poste theories on why things went bad or good, but there has been no consistency over time.


At 10:42 AM 4/22/2005, you wrote:

He explains his work in trying to distinguish price inflation from supply/demand adjustments in prices, using an index of 21 commodities first considered for use by the Fed in 1986. He concludes that the current median price change rate for those 21 commodities is zero, and that this means the Fed has already arrived at what amounts to the "neutral" fed funds rate of tightening. The Fed should go no higher with the funds rate because commodities are already at the point of beginning to fall in price, and a fall in price is not warranted because the price increases since 2003 were appropriate as a step-up in prices due to the substantial additional demand from India and China in the world market for such commodities. The Fed may be aiming at popping the housing price bubble, but should not do so because housing prices are not reflecting inflation so much as a revaluation due to lower interest rates in today's economy. Proceeding in an attack on housing would cost a substantial and unwarranted slide in equity prices. In short, Angell makes the case primarily using his commodities price change index as the guide for monetary liquidity that the "neutrality" rate is 2.75% or maybe 3% (erring on the side of tightness), and the Fed should go no higher than that.

I wonder if he is making the case to the Fed itself, or to the markets on behalf of the Fed, or both. W

From: "Jude Wanniski" <>
To: <>
Cc: <* * * * *>
Sent: Friday, April 22, 2005 7:10 AM
Subject: angell


What do you make of Angell's WSJ op-ed?