Is The Federal Reserve The World's Worst Forecaster?

Tyler Durden's picture

The answer, of course, is yes: they are after all, economists (who somehow, with no real world experience, determine the daily fate of billions of productive and capital-allocation decisions every day). But it is one thing for everyone to discuss the obvious anecdotally by the water cooler. It is something else for this verbal heresy to be printed in a "serious" publication. Such as Reuters, which today asks if "the Federal Reserve has watched the U.S. recession and painfully slow recovery through rose-colored glasses?" And answers: "A look at the U.S. central bank's economic forecasts over the past five years suggest it has." It then explains: "Since October 2007, when the Fed's policy committee began giving quarterly predictions for GDP growth and the jobless rate, the central bank has downgraded its nearer-term forecasts almost two-and-a-half times as often as it upgraded them. The gap between Wall Street's expectations for 2012 growth and the Fed's own current view points to yet another downgrade on Thursday, when policymakers wrap up a two-day meeting that has world financial markets rapt." It concludes: "The trend of back-pedaling shows how poorly the central bank has fared at reading the economic tea leaves, with the Fed's optimism a likely factor in policy decisions through the Great Recession and its fallout, economists say." In summary: the world's most ebullient and permabullish forecasters, who incidentally happen to constantly be wrong in their desperate attempts to affect the only thing that matters: consumer and investor sentiment and confidence via the increasingly irrelevant myth that are asset prices, happen to run the monetary world and "determine" just what the future looks like. Needless to say, if the Fed's presidents were actually employed in the private sector, they would have been fired ages ago. Only in a fiat world do they not only keep their jobs, but keep on running the world.

A more detailed look at the constant failure of the central planners to see beyond the horizon:

"The Fed has been kind of consistently overestimating where growth should be ... it has expected too much," said Eric Stein, a portfolio manager at Eaton Vance.


When the forecast proves too optimistic, the central bank trims its expectations, building the case for further policy easing, he said.


"I'm not saying they are intentionally lowering forecasts to try to ease; they are lowering them because that's the reality of the situation," Stein said. "But if they want to ease, having that as justification, particularly with the upcoming political election, is helpful."


In what is often described as an aggressive response, the Fed has kept short-term interest rates near zero for nearly four years and launched two rounds of so-called quantitative easing in a bid to push down longer-term borrowing costs. It has also said it will keep rates low until at least late 2014.


Despite those unprecedented moves, the recovery has been choppy, several times revving up just enough to raise hopes before slowing down again to spark a new round of action by Fed Chairman Ben Bernanke and his colleagues.


This week, most economists expect the Fed will take steps to decisively ease policy again with a third round of bond purchases to give the recovery another kick start.


It will also offer a fresh batch of forecasts for growth, unemployment and inflation - as well as projections for when interest rates will finally rise - this time stretching them over four years into 2015. Previously, the Fed waited until November to add a fourth year.


Looking back at both 2010 and 2011, Fed policymakers bumped up their forecasts for jobs early in the year, only to backtrack later.

And in numbers:

All told, disappointed policymakers had to ratchet down GDP growth estimates for the current year and the following year, or lower their unemployment estimates, a total of 53 times over the past five years. That compares to 22 forecast upgrades.


Officials left their estimates unchanged only five times.


Many of the upgrades were clustered from late 2009 to the spring of 2010, as the nation first began emerging from its worst recession in decades. But when job growth faltered and inflation began heading perilously low, policymakers turned more pessimistic and announced a new round of stimulus.


Last year, the Fed's optimism on unemployment was quashed after a springtime slowdown - first attributed to temporary factors like Japan's tsunami and earthquake and a spike in oil prices - dragged into the summer, signaling deeper problems.


The Fed responded by saying it would likely keep interest rates ultra-low through mid-2013 - and then, this past January, through at least late 2014.


Optimism over jobs had risen again by early this year. But then the euro zone crisis deepened, raising new worries over the U.S. economy, and in June the central bank downgraded its forecasts once more.


Of course, officials at the U.S. central bank have been far from alone.


"The shocks and surprises have definitely been coming from one direction the last few years," said Peter Hooper, chief U.S. economist at Deutsche Bank Securities in New York. "Everyone was expecting the usual bounce after the recession, but that didn't happen."

Of course, the reason for that is, as we wrote some time ago, it is the Fed itself, with its ceaseless meddling and micromanagement of everything from the housing market, to the S&P500, that has broken the business cycle. In fact, in a normal world, 3 years after the last recession "ended" the time to prepare for the advent of a new recession would be soon coming. In the New Normal nobody cares about that, because in reality nobody believes that the Great Depression 2.0 is anywhere close to over.

Except the Fed of course.

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RobinHood73's picture

Dear Federal Reserve

Thanks for QE3. Give me QE4! Give it to me! 1 trillion Now! Or Else!



vmromk's picture

The Federal Reserve is a criminal syndicate which will be dismantled by the next election....GUARANTEED.

i-dog's picture

...*sigh*... Today: Reuters attacks the Fed. Tomorrow: WSJ attacks the ECB. Rinse, repeat.

Don't you get tired of this, Tyler? Get back to tearing these shills were good at that!

GetZeeGold's picture's only been four years.....give Tyler some time!


malikai's picture

The whole curve is looking pretty bewildering this morning. The most muted is the 5 year, shown here.

My guess is dissapointment tomorrow.

old naughty's picture

"with its ceaseless meddling and micromanagement of everything from the housing market, to the S&P500,"

They execute a plan; they do not forecast.

Carl Spackler's picture

Maybe, the Fed's forecasts are reasonably accurate at the original point the forecast is made ?

However, the Fed's subsequent policy actions then undermine their forecasts and prevent the forecast from ever occurring !

I blame Bernanke.

Woodyg's picture

If the Feds True mandate is to funnel wealth and money straight to the top and to the member firms of the Fed they seem to be doing an outstanding job!

In fact Greenspan bragged about delivering 'structural insecurity' into the labor market!
Another outstanding job!

If enriching the oligarchs and creating slave labor is the Feds true mandate they're dong quite well.

Until we hang their asses from the nearest petro station lamppost that is.

End The Fed! Jail the Banksters! Break up the banks!

Or elect the Oilybomber or Rawmomey as the next president and have th Fed reserve members steal even more wealth from We The Muppits..

Ruffcut's picture

The behave like kidnappers of capital as they print their own ransom.

LawsofPhysics's picture

The Fed owns the western world, period.  Do not go any further, that is all your need to know.  Until the moral hazard is addressed and real fucking consequences for bad behavior is restored at all levels of society, nothing changes.

Until then long black markets, sharecropping (as the fed loses control of energy and food costs), and all things physical.

Pseudo Anonym's picture

you're misinformed if you believe this:

The Fed owns the western world, period.

the hofjuden behind central banks own the western world... and much more

LawsofPhysics's picture

Stating the same fucking thing; the hifjuden own the central banks who own the Federal reserve.  

Why not take it a few steps further and identify the primary shareholders, shit you can narrow this down to less than 10 families if you keep raising the bar in term of shares or ownership/usury (i.e. money for nothing, rent bitches).

LongSoupLine's picture

The failure of this analysis lies in assuming that the Fed is "trying" to be accurate in their public releases.


The sooner all media realizes the Fed's ONLY charter is as a manipulative wealth transfer mechanism, then we can truly create apples to apples analysis.

pods's picture

Of course that assumption relies on the mission statement of the media being to inform the public of all information so they may come to a reasonable conclusion.

“We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national determination practiced in past centuries.”-David Rockefeller



(not sure if this is a word for word quote, but the common saying is along these lines)

Anasteus's picture

I agree. The Fed has never dealt with real economy in the first place, therefore it's irrelevant what conclusions based on false assumptions the puppet Reuters is foisting on its readers.

TheSilverJournal's picture

If the Fed said what it actually thought, there would be no more it says what it needs to say in order to self preserve.

spanish inquisition's picture

And the preservation of it's shareholders.

Edit: Follow the money, not the fiat. If the FED needs to blow  the financial system up, see who is holding the paper to real assets. So far with a couple of test cases, its been JPM as proxy for the rest of the shareholders.

DeadFred's picture

Exactly. All this report proves is that their public reports are rose tinted not what they actually believe. Ben has said that communication (read propaganda) is one of his primary tools now. Why would anyone trust his evaluation any more than than "Smilin' Sam" the used car dealer telling you the fine features of that classic '71 Olds at the back of the lot.

Al Capowned's picture

Worst forcasters or best propangandists?

From everything i have reed the Federal Reserve wa not setup to secure stability growth and employment, but rather to transfer wealtht from the many to the few.

In which case they are excelling!

Depends which wasy you look at it

Jlmadyson's picture

We're still in the soft landing.

You hadn't heard?

If you tell yourself and the world something over and over again eventually that something becomes reallity.


pods's picture

My level of discomfort indicates we are way past "just the tip."


Jason T's picture

Elgrin Groseclose said it well in his book Money and Man:

" There is, however, one phase of the debt problem which has generally been overlooked and to which attention must be called. That is the fact that our system of money based on debt has destroyed one of the principal functions of money—that of serving as a store of value. A t the same time that it has aggra- vated the business cycle, by encouraging speculation, it has made it almost impossible to build up reserves against the day of inevitable collapse. Under our system of money, it is well nigh hopeless for the average man to save against a rainy day. F o r savings, under our scheme, are not reserves; they are used by the banking system, they are spent in the capital markets, and when they are needed, they are discovered to be immobilized, to be invested in bonds and loans the value of which is dependent upon a continuation of prosperity."

Contiued posperity is now depenant on Ben's QE.

Cognitive Dissonance's picture

He's lying to protect us from certain doom...........his doom.

Cognitive Dissonance's picture

Sic em doomandbloom

Sic Bernanke

At the very least pee on his shoes. A lot. :)

Jlmadyson's picture

Latest yahoo finance headline:

US Debt Downgrades Are a Forgone Conclusion.

Ya think?

Munkey's picture

We have many tools at our disposal and you just wouldn't beleive how many tools are required for running a printing press.

Kind regards


Sudden Debt's picture

A lot of WD40.... a lot...

Zero Govt's picture

for the printing press or the monkey grinder??

GolfHatesMe's picture

QE tomorrow = I am Schumer's Bitch

No QE = Do your job Mr. Senator

Zen Bernanke's picture

I took two important points from that article. 1.  the fed has effectively broken the business cycle with their meddling and 2. had the fed governors been working in the private sector, they'd have been fired long ago.   


Element's picture

Yes, it is. 

Frederick Sheehan has been saying that and giving excellent examples for years.

101 years and counting's picture

incompetency is required.  its how they justify printing trillions of dollars for banks for the banks to store at the fed and for the fed to pay interest on. 

khakuda's picture

Assuming you are even going to have a FED, which is a big assumption, shouldn't it be staffed by business people, CFOs, MBAs, etc who have business experience instead of academic economists?  I realize they have some of these, but FOMC policy makers in particular should not be allowed to serve if they have little real world business experience.  To have had academics like Greenspan and Bernanke running the show is a joke.

alfred b.'s picture


      The Fed manipulates all markets from stocks to bonds to metals to real estate!   And this it does with the approval of tax-cheat Geithner  and the assistance of bankster Dimon:   the trio of evil involved in the slow destruction of the middle class and the eventual death of the US empire.

      Buy physical gold and silver!


theorist's picture

Looking at Reuters analysis, is it suprising that the Fed has been off in its projections and prognostications. Most economic models are pretty weak representations of reality, and as they cannot really be tested become encapsulations of someone's opinion on how an economy works. Reading the Bernanke speach, he makes the point that they estimated the  effect of previos QE's on growth, the movement in long term interest rates, etc. He even provides numbers for these, as if they are a proof that QE is working. If, however, you read carefully, you notice that he used a model to estimate the benefits of QE. The model only gives you an estimate if you beleive the model assumption that QE benefits the economy. So, his speach's takeaway - QE has worked. What he really said - If you assume QE works this is the size of the effect. He has no way of proving QE has worked. It is his opinion and not fact, and we continue to have more of this experimental drug whose long term consequences we do not really understand...

Paul E. Math's picture

It is Plato's allegory of the cave.  The Fed is just the actors on a stage casting shadows against the cave wall, which is all the mentally enslaved populace has ever known.

Those of us who have been outside the cave and know what a real tree and a real currency look like will be unwelcomed messengars when we try to return with the truth.


cynicalskeptic's picture

Have known people who worked for this august institution.  They said it combines the WORST of private and public.... the level of sheer incompetence was astounding......   as for their forecasting abilities - one person spent years backing into numbers justifying what some CVP pulled out of his ass - takes talent to continually hit the same number when ALL of your parameters have changed.  Manipulating data is an art..  

but that was back when the Pres of the NY Fed was getting dried out on a regular basis (fell down and knocked over a podium while addressing bankers once).... I'm sure the quality of upper management has gotten MUCH better since then.........

intric8's picture

The feds hindsight is unreal. It's awesome. They know exactly what happened, and what should have been done to prevent the problem. It's an uncanny ability, quite frankly.

Edit: Oops, we're talking about foresight...


Anasteus's picture

The tragedy of the contemporary western society lies in how easily the society accepts whatever bullshit being told to it by 'authorites' as long as it fits it's dreams, illusions, or expectations. No verification, no deliberation on attainability, nothing. What is worse, the society has lost sense for hidden incentives naively assuming they are identical with those being presented, that is, always positive or good for the joint benefit. It's shocking how easily our 'rational' and 'developed' age can give in to apparent stupidities as long as they appear to be 'rational'. Natural intuition, instinct or preventive suspicion, still vital in so called primitive nations are all almost gone. The lack of these forgotten mental defence mechanisms makes the society extremely vulnerable to social disaster, manufactured by those few who's mentality allows for acting the way that is 'unimanigable' for the majority. It is exactly the refusal of taking such acts into consideration or even start thinking of them, that allows 'the few' to act so comfortably behind the scenes. History, however, shows us many examples of such 'unimanigable' activities.

indio007's picture

A plea to authority is one of the most pervasive logical fallacies in daily practice.

Anasteus's picture

When compared to the traditional form of communism, in which I'd been living for over 20 years, this form is more insidious. In communism there was lack of freedom, goods, services, wages were extremely low, many things were simply inaccessible, which created intrinsic tensions and general discontent, particularly, when compared to the wealth in the West. Current newer form seems to avoid repeating this mistake; certain higher level of prosperity and living standard must be maintained so that people remain satisfied and do not feel the tensions. But the common attribute 'a plea to authority' is gradually emerging again giving authorities stronger powers as well as legitimacy to act as a Big Father taking care of his poor children begging for help. I'm wondering how communist ideas can still be so vital. All that blabber around the new world order, perpetual danger, searching for foreign enemy, bright ideas we have to follow (we called them 'bright tommorrows') is something I'm intimately familiar with.

ThisIsBob's picture

Thank god the Fed has edifices scattered around the country filled with PHD's.

Can you imagine how wrong it would have been otherwise?

Colonel Klink's picture

Thank god the Fed has orifices scattered around the country filled with PHD's.

Fixed it for you.