How does Alan Greenspan, the U.S. Federal Reserve chairman, decide to raise or
lower interest rates? He analyzes statistical indicators and raw data describing the U.S.
economy. He gathers and synthesizes the often-conflicting reports of the governors of
the Federal Reserve Board and those of the presidents of the 12 Federal Reserve
Banks and other major banking institutions. He combines all this with his 25 years of
experience and intuition, along with real-time information that includes anecdotal
insights from leaders of important sectors of the U.S. economy. Data and other knowledge
are provided through this extensive network that comprises a knowledge management
system extraordinaire.
Given the reports from the Federal Reserve Bank, Federal Reserve Board, and
presidents, Greenspan utilizes the results of economic analyses of some 255 economists
dedicated to understanding the U.S. economy and its relationship to economies
throughout the rest of the world, plus those at the 12 Federal Reserve Districts (totaling
around 500 economists). Before each meeting, the Fed financial experts gather economic
data and develop and analyze many important economic indices. As reports on
the gross domestic product (GDP), consumer prices, and other economic indicators are
available: they are gathered and loaded into the Fed's Forecasting, Analysis, and
Modeling Environment (FAME). Most data are gathered electronically. The information
system runs on about 100 servers. Greenspan's information system combines raw
data and computerized intelligence with personalized tales from the key economic
hubs. The system comprises several software tools developed by and for a group of
international economists to determine the health of the U.S. economy. These range
from a set of economic modeling systems developed in-house for the United States,
several countries, and the world, and a number of systems developed in commercial
software tools: a cross-sectional analysis system, a historical economic data pattern
analysis system, tools for seasonally adjusting data, a mathematical computations
engine, a large-scale database, and e-mail. Forecasting at the Fed utilizes scientific principles
but also includes personal insights, knowledge, and intuition. Greenspan has a
good sense of how much to trust statistics and how much to trust his intuition.