Tuesday, December 24, 2013

If Possible, Fed Forecasts Are Worse Than Its Policies

Diana Furchtgott-Roth writes:
One might think that the qualification to become a governor of the Federal Reserve Board is to be an eminent economist. But the real qualification is a professional optimist. Here's why.[...]

· In 2010, the Fed forecast that the economy would grow at about 4 percent in 2013.

· In 2011, the Fed's forecast for 2013 growth declined to 3.2 percent.

· In 2012, it was lower still, at 2.6 percent.

· Now, in 2013, the Fed thinks that GDP growth this year will be about 2.3 percent.[...]

The year 2013 is not an anomaly. Over the past few years, the Fed's forecasts have regularly overshot reality.

· In 2010, GDP growth in 2012 was supposed to be 4 percent-it ended up at 2.8 percent.

· In 2010, the median Fed forecast for 2011 growth was 3.3 percent. The reality was 1.8 percent growth in 2011. The Fed cannot even forecast GDP growth a year out.[...]

The Fed keeps telling the same story and one day it will be true. A stopped clock is right twice a day. But that does not mean that the stopped clock tells time, much less than a stopped clock causes time to change.
The economy is much too complex for anyone to make exact numerical forecasts, especially for a massive aggregated number such as GDP. The fraud starts with the Fed giving the impression that such forecasts can be made.

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