St Louis Fed's Poole - Markets must understand Fed

"Both of these need to be understood in the markets, otherwise the economy faces the equivalent of a broken play in football, where some members of a team think one play is being run and others think another play is being run," Poole said in remarks prepared for delivery to a business school audience at Washington University in St. Louis.

Poole said that with formal data giving an incomplete and often delayed picture of the economy, including in the key areas of growth and inflation, anecdotal information can be a valuable supplement for the Fed's policy considerations. He said given history, the likely range of the final estimate of fourth-quarter gross domestic product, which the government said in its first estimate increased at a 0.2 percent annual rate, is between -0.4 percent and 1.1 percent.

Poole, who is not a voter on the policymaking Federal Open Market Committee this year, said that the aftermath of the September 11 attacks illustrates the value of anecdotal data. He said the interest rate cuts on 17 September and 2 October were based on anecdotal reports and experience, "but without any substantial amount of formal data applying to the period after September 11."

But there are some pitfalls in the way anecdotal information is gathered, he said, adding that the Fed will continue to rely "heavily" on formal data as it sets policy.

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