How much faith should you put in the Federal Reserves forecasting acumen? No more than youd put in the average economist, if 2009 is anything to go by.
For The Wall Street Journals annual ranking of economists, we use five criteria: their estimates for GDP growth from the fourth quarter of 2008 to the fourth quarter of 2009; their inflation estimates, as measured by the price index for personal-consumption expenditures including and excluding food and energy prices; their estimates for the fourth-quarter average unemployment rate; and their year-end forecast for the Fed’s target rate. All but the last of those — the target rate — are things that the Fed forecasts as well.
At its January 2009 meeting, members of the Board of Governors and the presidents of the Federal Reserve Banks submitted economic forecasts. Taking the midpoint of the central tendency (which excludes the three highest and three lowest projections), they were looking for GDP to fall 0.9%, for the unemployment rate to hit 8.7%, for overall prices to rise 0.7% and for prices excluding food and energy to rise 1%.
Using those four criteria, and The Wall Street Journals ranking methodology, the Fed places 21st out of 52 forecasters. Depending on your mood, you can call that average or you can call it middling.