Where on Earth Does the Fed Get Its Data?

The problems began the last week of June, when the Fed held rates steady, citing "some firming in household spending." They used that and inflation to create an aura that the next thing they needed to do was tighten. It has been all downhill from there.

We know from last night that Texas Instruments (TXN - commentary - Cramer's Take), SanDisk (SNDK - commentary - Cramer's Take) and, most important, American Express (AXP - commentary - Cramer's Take) see a huge turndown in spending. SanDisk and TXN are gadget spending, and that's a key discretionary income item. American Express is spending across the board. They all target June as being horrible, a major step down in consumer spending .Which means, what was the Fed thinking? What kind of data did they have?

As we annualize my call on the Fed to cut rates -- something they didm but obviously not fast enough -- it is time once again to evaluate the Fed's sources and figure out where they get their information. Yes, the dollar is weak -- how else do you think you can get some great numbers from Caterpillar (CAT - commentary - Cramer's Take) this morning and from United Tech (UTX - commentary - Cramer's Take) last week? But those aren't consumer spending. Consumer spending can be measured much more effectively by American Express.

Plus, every single bank that has reported has noted a big increase in nonperforming loans. The only bright spot last week on this front was from JPMorgan (JPM - commentary - Cramer's Take), but then they came right out and said that the first mortgage holders are now defaulting at larger rates.

I think we will look back at this moment and realize that lots of the next phase down could have been prevented had the Fed simply said, "We know there is a lot of upside risk to inflation, but most of it is food-based because of the ethanol mandate, or oil-based because we do not have an energy program." (Remember, Greenspan did his big "natural gas shortage" thing when he was the Fed chief, so such language isn't out of bounds.)

I keep coming back to the information-gathering that the Fed does. How could it be so at odds with outfits like AXP? Why can't it check in with them? Are the researchers as academic as Bernanke? Do they simply say "given the stimulus checks, things are better?" Do they rely on their own models to determine things? Whatever they did, it was obviously plain wrong and is a major piece of the puzzle of the intense downleg we are now experiencing.

At the time of publication, Cramer had no positions in the stocks mentioned.

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