Saturday, February 22, 2014

Fed Forecasts -- Revisiting January of 2008

It is instructive to look at the Fed predictions in early 2008 prior to the collapse of Bear Stearns and Lehman.  In their January, 2008 meeting, the Fed research staff made the following forecast:

"Turning to the labor market, the jump in the unemployment rate in December (of 2007) in combination with our weaker outlook for growth in real GDP going forward has led us to raise our projected level of the unemployment rate to 5.2 % at the end of 2008 and 5.3 % at the end of 2009."

The above quotation is taken directly from the January 2008 transcript of the Federal Reserve Open Market committee meeting.  As we now know, unemployment was double the rates put forth in these projections.  The Fed economists could not have been more wrong.  Bernanke, Yellen and Geithner voiced no concerns about the possible inaccuracy of this forecast.

Why, based upon this kind of forecasting history, does anyone believe anything the Fed says about future of the economy and the need for fed action or inaction?  That had no idea then and they have no idea now what the economy is likely to do.

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