In historical times, credit preceded the coining of money by over two thousand years. Coinage is dated from the first millennium B.C., but old Sumerian documents, circa 3000 B.C., reveal a systematic use of credit based on loans of grain by volume and loans of metal by weight. Often these loans carried interest.
—Sidney Homer, A History of Interest Rates, 1977, Chapter 1, p. 17
My first crack at forecasting interest rates was a trial by fire. It began the first weekend of October 1979. I was in my office at the Federal Reserve Bank of New York, preparing my first presentation on credit markets and interest rates for an audience of senior New York Fed officials. As the newly appointed Chief of Financial Markets Research in the domestic research division, I was to brief the officials before they traveled to Washington DC for a regular Federal Open Market Committee (FOMC) meeting. There, the Fed would set the overnight Federal funds rate—a key to the Fed's overall control of interest rates and, by extension, the economy.
The FOMC meeting was slated for October 16, with our internal briefing scheduled the week prior. But on October 6, as I was toiling over my draft, the FOMC was conducting a special, top-secret meeting to adopt a radically new approach to U.S. monetary policy, one that would turn the world of interest rate forecasting upside down. In a hastily called press conference following the meeting, the Fed announced ...