Are federal reserve economists windbags?

Question

If they are all knowing, how is it possible that this country is teetering on the edge of an economic abyss? A lot of everyday folks have seen this coming for years. Or is there truth to some of the conspiracy theories?

Answer 1

  They have made statements indicating that they also saw it coming , but the only tools they have to stop bubbles in asset market will crash the economy which might have done more harm than good, and when in doubt they let the markets run. Seeing a problem coming  is a lot easier than stopping it. We have also known the crunch in energy was coming for 30 years, and done nothing about that either. Since the economic problems in the 1970's the ideology that markets solve problem better than government has been in vogue, so Congress  has been dismantling existing regulations not passing new ones. When people talk about Reaganomics this  is what they mean other than lower taxes, so it was not a conspiracy   but policies  that  were openly advocated and debated  

Answer 2

The federal reserve probably saw this coming (or the risk of this coming) for years as well.  The problem is that they are not legislators.  They can't say, "hey banks, don't be idiots with your lending practices" or "hey congress, maybe you want to think about how much this war will cost and ask if it's really worth it".

The only thing the federal reserve can do is make gross changes to monetary policy to react to the here and now.  Even if they have foresight, they can't act on it in any effective way.  That is the job of the legislators.