But it's Fed analyses and Greenspan's jawboning that have put the issue of poor statistics, like the CPI, on the national agenda. And while Congress denies the nation's statistical agencies the relative pennies needed to keep pace with the new economy, the Fed has no choice but to use what is available. Indeed, weak statistics paradoxically explain why Greenspan has such an appetite for data, scouring dozens of measures of capacity and labor-market tightness, and devouring reports on local business trends from the Fed's 12 regional banks. Some evidence suggests that international competition limits U.S. firms' freedom to raise prices, but only a small share of the economy faces import competition. Others say widespread corporate restructuring means the economy's capacity can be used more efficiently in ways we don't fully understand.
Nobody knows for sure.
For now, then, Fed action will ultimately turn on judgments about how reversible inflation would be once it got started. If he is right, the Fed can safely continue to probe the limits of noninflationary growth. But Fed governors Rivlin and Phillips caution that Federal Reserve anti-inflation steps have historically come too little, too late. Inc. All rights reserved.