NCPA - National Center for Policy Analysis

Pitting The Fed Against Private Forecasters

August 9, 2000

Just how good are Federal Reserve economists at forecasting future inflation and growth?

A study in the American Economic Review by Christina D. Romer and David H. Romer of the University of California at Berkeley gives them high marks -- or at least higher marks than for private sector economists.

Since Fed forecasts -- which are prepared eight times a year -- remain secret for five years, the researchers went back to the 1960s and reviewed forecasts up to the early 1990s.

  • The Fed projections on inflation and growth for the following 12 to 18 months were compared with the consensus forecasts of private economists.
  • The researchers found that the Fed's forecasts were consistently better than the private ones.
  • The inflation forecasts were so good that private economists -- had they had access to them -- would have done better to ignore their own calculations entirely.
  • The Fed's growth forecasts were nearly as good.

Source: Gene Koretz, "The Infallible Dr. Greenspan?" Business Week, August 14, 2000.


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