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Just how good is the Fed?

The Fed has dscovered the gift of the gab, and it doesn't seem to have done any harm. Not yet, anyway.

Alan Greenspan

In the central bank effectiveness stakes the European Central Bank has been most often compared - generally unfavourably - with the US Federal Reserve. Certainly the Fed seems more responsive to market movements and talks to the market rather a lot too. But then how effective is all this communication?

"Loose lips sink ships" was the wartime watchword in official Washington. But who would know it today? The formerly secretive Federal Reserve doesn't seem the least bit concerned when its people speak their minds in public. So a veritable cacophony of views sometimes gushes forth from the US central bank.

The Fed's new-found gift of the gab doesn't seem to have done any harm - at least not yet. "The dollar remains firm against the currencies of nominally hawkish central banks," says John Makin, an economist at Caxton&Co in New York who spends part of his time as a policy expert at Washington's American Enterprise Institute, "even though the Fed has eased aggressively, while most measures of inflation have been stable to higher.

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