Fed Governor Says Traditional Econ Data May Not Be Keeping Up With Inflation: 'Often A Mistake'

A Federal Reserve governor has suggested that traditional data sources and lagging economic indicators might not cut it anymore.

Fed's Cook Talks 'Nonstandard Situations': In what was her first speech as a Fed governor, Lisa Cook on Thursday provided an outlook for the economy, but her comments on policymaking stole the limelight.

"In my new role, I must make judgments on the economy, weighing new information against existing theories, and translate those judgments into appropriate policy action," Cook said during a speech at the Peterson Institute for International Economics.

The Fed governor highlighted her previous research on economic growth and her experience working at the Council of Economic Advisers during the eurozone crisis, which she said has taught her how difficult it can be to make forecasts in highly uncertain environments.

"I also saw firsthand that it is often a mistake to rely on standard models for nonstandard situations," Cook said. 

The Fed began tightening at the beginning of the year, but as American economist Paul Krugman pointed out Wednesday, the impacts on the real economy lag by about six months. 

Krugman warned the economy may be turning faster than most think and the Fed may have overshot in its aggressive response to rising inflation.

Related Link: Only 2 Months Until This Jobs Measure Screams Worry, Economist Says 

Fed Governor Suggests Data Sources Like Rental Rates: Cook seemed to share a similar sentiment on Thursday when she suggested traditional data sources aren't working. 

"Paying close attention to the data is key, which, of course, includes readings on inflation and the labor market. But we must be humble about our ability to draw firm conclusions and prepare for inevitable surprises," Cook said. 

"We also need to consider timely high-frequency data that more quickly capture evolving economic developments than do traditional data sources."

Some examples of such data include wholesale used car prices, rental rates on new leases and survey responses on supplier delivery times or prices paid. She also noted that the Fed could make use of nontraditional, real-time information, such as Alphabet Inc's GOOG Google mobility data or Open Table data on dining reservations.

"In considering whether standard models remain appropriate, one focus for me is the well-known long and variable lag between monetary policy actions and their effect on the real economy and on inflation," Cook said.

"Although most forecasts see considerable progress on inflation in coming years, it is important to consider whether inflation dynamics may have changed in a persistent way, making our forecasts even more uncertain."

See Also: Friday's Jobs Number Could Move Markets: What You Need To Know

SPY Price Action: The SPDR S&P 500 SPY lost 1.03% Thursday, closing at $373.20, according to Benzinga Pro.

Photo: eflon from Flickr.