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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Fed Ignores Own Advice in Canceling Holiday Bash

The Federal Reserve, as reported here on Monday, is not throwing its usual holiday party this year. Officials there felt it would seem inappropriate given the recession underway.

This is exactly the kind of behavior that the Fed hopes that businesses and households don’t engage in.

Normally, about this time of year, the Fed’s public affairs office invites the congressional staff they deal with and reporters who cover the central bank to sip mediocre wine and chat up Fed governors and other senior officials.

It is nothing lavish, but it does help the economy in a small way — the waiters who pass around finger food get an extra shift, the suppliers of the beer and wine log an extra sale, the taxi drivers who transport attendees to the event get an extra fare.

A recession comes about when companies and consumers pull back on purchases unnecessarily; in other words, when they do exactly what the Fed is doing in canceling the party for the sake of appearances.

It certainly isn’t a cash crunch causing the Fed to pull back. Alone among financial institutions, it is likely to record record profits this year.

The Fed returns any money it makes at the end of the year to the U.S. Treasury, and because it has vastly expanded its lending, the profit it returns to the Treasury is likely to balloon.

Indeed, in a world in which banks, investment firms and insurance companies are folding or merging left and right, the Fed is just about the only financial organization to have grown this year.

If it’s any solace for the economy, the Treasury Department is proceeding with its holiday party, which is to be held tonight.

-- Neil Irwin

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By Frank Ahrens  |  December 9, 2008; 2:43 PM ET
Categories:  The Ticker  | Tags: Ben Bernanke, Federal Reserve, Treasury  
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