The Federal Reserve, by a 9-3 vote yesterday, reduced the federal funds target by twenty-five basis points. The decision was not in itself remarkable; markets had largely priced it. What is worth attention is what the decision says, and what the discussion around it has failed to say.

The case for the cut, as the Committee's statement explained it, rests on forward indicators — manufacturing new orders, small-business credit conditions, commercial real estate financing — that have weakened in a way the aggregate price index does not yet capture. Fair enough. I do not, in this circumstance, find the cut indefensible.

What concerns me is the near-complete absence, in the public discussion, of any reference to the monetary aggregates. M2 has decelerated meaningfully over the past nine months; the velocity of money is, by some measures, the lowest in fifteen years; and the implication for inflation in twelve to eighteen months is one the Committee would be wise to consider. The doctrine that we have moved past the relevance of monetary aggregates is, in my judgment, a doctrine the public has been encouraged to accept by central bankers who would prefer to be judged by their forecasts rather than by their monetary record.

My counsel, for what it is worth: the cut was within the bounds of defensible policy. The next two decisions should pay closer attention to what the money supply is actually doing, and less to the elaborate forward-guidance theater that has substituted for monetary analysis.