Wednesday, June 29, 2011

Foreguess, Not Forecast

The Federal Reserve Board press release following the meeting of June 21-22, 2011, stated  “Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected.  Also, recent labor market indicators have been weaker than anticipated.”

And yet, the FOMC proceeded to project economic growth, unemployment, and other indicators through the fourth quarter 2013.  Huh?  If the Fed cannot forecast one quarter with any degree of accuracy, how they correctly forecast the next ten quarters?

Going further, how can any budget agreement accurately forecast ten years of budget savings?  Ditto for the Congressional Budget Office?

The answer is that they cannot.

The projections of the Fed, CBO, OMB, and other entities amount to foreguesses [conjecture], not forecasts [predicting, estimating].

Barry Ritholtz is more blunt.  His response to Ben Bernanke merits reading.

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