Now that the Wall Street Journal has again featured the Fed’s forecasting record, I thought it would be a good time to review the review I did in 2010.
June 19, 2013- Bernanke said today that the taper will depend on the economy sticking around the Fed’s forecasts. The problem is that the Fed has never been able to forecast the economy correctly. It hasn’t even been able to forecast present conditions correctly. This is true not just of the aggregate FOMC forecast, but of each individual member surveyed. The Washington Post covered this issue today. I wrote a report on this back in 2010 covering the period of 2007 to 2010, excerpted below. I think the market woke up today to just how clueless, delusional, manipulative, and incompetent Ben Bernanke really is.
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Here’s the report from 2010.
Just how clueless are these people? Here’s a little exercise to illustrate. Below is a series of graphs showing the Fed’s grasp of the economy over the past several years. At each FOMC meeting the 5 Fed Governors and 12 District Bank Presidents are surveyed as to their expectations. The results are tabulated and presented in graphical form. Below are the results for forecasts of GDP and Unemployment. Their record on inflation (not including asset prices of course) has been pretty close to the mark, so there’s no need to review that data. The date of the meeting is shown above each pair of charts, with my comments below.
October 30-31 2007
Real GDP Growth for 2008 was -3.3%. None of the Fed Governors or District Bank Presidents saw that coming. Not a single one!
1 year after this meeting, the Unemployment Rate was 6.6%. At year end it was 7.4%. The average for the year was 5.8%. Not one of the Fed Governors or District Bank Presidents saw it being that high.
June 24-25 2008
9 months later, even when they were right in the middle of the recession, not a single Fed Governor or District President was able to judge its severity. All were predicting just under 1% growth, not even close to the 3.3% actual decline. They were overestimating GDP and underestimating unemployment.
October 28-29 2008
They had the same lack of vision even after the stock market had crashed in October, having no clue as to the depth of the recession already well under way. Then they underestimated GDP growth for 2009, when it actually grew by 2.4%. Not a single FOMC member had it that high. However, they completely missed the unemployment rate on the low side. The average rate for the year was 9.3%. None of them had it higher than 8%. Not one had it right! They were wrong on total economic growth, and wrong on unemployment, in opposite directions? They weren’t just wrong on average. Every single one of them was wrong on both accounts. This is beyond random. It tells us that their models simply do not work. They are designed in such a way that if they can’t give the right answers.
January 27-28 2009
They got even worse on GDP in early 2009. Not a single member foresaw growth for the year, let alone 2.4%, the actual growth rate for the year. And yet they were still underestimating employment.
April 28-29 2009
They finally guessed right on employment for the year 2009 by the end of April with 4 months of the year already done. They still did not understand the impact of their policies, however, still grossly underestimating GDP growth. Again, not a single Fed Governor or District Bank President got it right.
June 23-24- 2009
Did they get it by mid year? Nope, but they had gotten very bullish on 2010. Will they be right? I wouldn’t bet on it. As for long term forecasts, if they can’t even guess the short term correctly, we should give any weight to their longer term forecasts? As far as I can tell the FOMC members are engaged in mental masturbation. It may make them feel good, but as a tool for making monetary policy, it’s a complete waste.
This little exercise shows that the Fed is not only clueless, but probably even delusional, since they even refuse to see the obvious. They see nothing, they hear nothing, they know nothing; and then, when the conflagration surrounds them, they react with too much, too late. Once they’ve had their fun, not knowing what is happening or what will happen, they then go back to their old behavior of doing nothing at the level of the last policy action until the economy blows up around them again. Then they begin a new round of too late, over-reactive policy actions.
This willy-nilly, ad hoc, crisis reaction brand of central banking is a disgrace, a scourge on our nation and the world. Why should we give any credence to their current views? We should not. With that in mind check out their current range of forecasts below, in other words what NOT to expect for the next year.
June 22-23 2010
The unemployment rate is a red herring anyway. What’s important is the total number of jobs in the economy. Even as the unemployment rate has remained stable, the total number of employed continues to shrink. The government, in its infinite wisdom, removes just enough numbers from the labor force count to keep the unemployment rate stable. The Fed isn’t even playing the right game, let alone hitting the right target.
Oh the absurdity!
I’ve been watching the Fed’s operations every day ever since it started publishing them daily in 2002 along with its balance sheet and the commercial banking system balance sheet weekly. As the famous financial philosopher L. Berra wisely said, “You can observe a lot by watching.” I invite you to watch along with me, and observe a lot.
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