(What’s Left of) Our Economy: Why Fed Forecasters — and a Big Shot Princeton Prof — May Soon Deserve “Fs”
This is performative politics again.
Members of the Federal Reserve’s Board of Governors are supposed to know a lot about the U.S. economy, so presumably their record of forecasting future developments should be pretty good. You could say the same for distinguished economist Alan S. Blinder, who served as the Fed’s vice chair from 1994-1996 and has taught economics for many years at Princeton University (Full disclosure: my alma mater, though I never took any of his classes.)
Why then, do their predictions for U.S. economic growth for 2025 seem so seriously and even increasingly off-base?
The Fed’s crystal ball results – which strongly influence its decisions on interest rates – include the collective judgments of all 19 Governors (including the partly rotating membership of the rate-setting Federal Open Market Committee). And they come out quarterly in the form of a document called the Summary of Economic Projections (SEP).
Their last forecast was issued in December, and their median prediction for 2025 yearly growth in inflation-adjusted terms was 1.7 percent. And some Governors believed it would hit only 1.5 percent. (More optimistic Fed chiefs wrote in two percent.)
In a January 21 op-ed piece, Blinder foresaw a better 2025 – writing that its real growth would be “around 2.5 percent.” But in this assessment of President Trump’s first year in office, dismissed it as “pretty much the same as in 2024.”
Why do these assessments seem to be complete bunk? First, as of the third quarter of last year, the price adjusted growth rate for the gross domestic product (GDP – the most widely used measure of the U.S. economy’s size and change thereof) was already running a bit north of 2.3 percent.
In other words, at that point, the Fed’s prognostications already seemed considerably wide of the mark. The official figures, moreover, were accelerating since the small (0.6 percent) drop in the first quarter that stemmed almost entirely from tariff front-running. And the second and third quarter expansions (3.8 percent and 4.4 percent, respectively) were both very strong. For some reason, however, the Fed Governors were apparently discounting this as of last December 10.
As a result, Blinder’s expectation of 2.5 percent real U.S. growth for 2025 looks closer to the mark. Yet subsequent evidence indicates that it, too, is almost certainly much too bleak.
After all, the widely followed GDP tracker issued by the Atlanta branch of the Federal Reserve since early January (before Blinder’s article appeared) has been estimating fourth quarter GDP growth at more than five percent. The latest edition pegs the figure at 5.4 percent.
The math reveals that if the Atlanta Fed’s judgments are accurate, inflation-adjusted 2025 growth will reach a shade over 3.2 percent.
To put that into perspective, if the Atlanta Fed projection holds, such annual expansion would be the strongest since 2005’s 3.5 percent. (There’s an exception – 2021’s 6.2 percent. But that pop came from the rapid recovery from the sharp Covid-induced downturn of 2020.) Clearly, on that basis alone, 3.2 percent ain’t bean bag. And it would be much better than what Blinder thinks.
And it’s entirely …
This is performative politics again.
Members of the Federal Reserve’s Board of Governors are supposed to know a lot about the U.S. economy, so presumably their record of forecasting future developments should be pretty good. You could say the same for distinguished economist Alan S. Blinder, who served as the Fed’s vice chair from 1994-1996 and has taught economics for many years at Princeton University (Full disclosure: my alma mater, though I never took any of his classes.)
Why then, do their predictions for U.S. economic growth for 2025 seem so seriously and even increasingly off-base?
The Fed’s crystal ball results – which strongly influence its decisions on interest rates – include the collective judgments of all 19 Governors (including the partly rotating membership of the rate-setting Federal Open Market Committee). And they come out quarterly in the form of a document called the Summary of Economic Projections (SEP).
Their last forecast was issued in December, and their median prediction for 2025 yearly growth in inflation-adjusted terms was 1.7 percent. And some Governors believed it would hit only 1.5 percent. (More optimistic Fed chiefs wrote in two percent.)
In a January 21 op-ed piece, Blinder foresaw a better 2025 – writing that its real growth would be “around 2.5 percent.” But in this assessment of President Trump’s first year in office, dismissed it as “pretty much the same as in 2024.”
Why do these assessments seem to be complete bunk? First, as of the third quarter of last year, the price adjusted growth rate for the gross domestic product (GDP – the most widely used measure of the U.S. economy’s size and change thereof) was already running a bit north of 2.3 percent.
In other words, at that point, the Fed’s prognostications already seemed considerably wide of the mark. The official figures, moreover, were accelerating since the small (0.6 percent) drop in the first quarter that stemmed almost entirely from tariff front-running. And the second and third quarter expansions (3.8 percent and 4.4 percent, respectively) were both very strong. For some reason, however, the Fed Governors were apparently discounting this as of last December 10.
As a result, Blinder’s expectation of 2.5 percent real U.S. growth for 2025 looks closer to the mark. Yet subsequent evidence indicates that it, too, is almost certainly much too bleak.
After all, the widely followed GDP tracker issued by the Atlanta branch of the Federal Reserve since early January (before Blinder’s article appeared) has been estimating fourth quarter GDP growth at more than five percent. The latest edition pegs the figure at 5.4 percent.
The math reveals that if the Atlanta Fed’s judgments are accurate, inflation-adjusted 2025 growth will reach a shade over 3.2 percent.
To put that into perspective, if the Atlanta Fed projection holds, such annual expansion would be the strongest since 2005’s 3.5 percent. (There’s an exception – 2021’s 6.2 percent. But that pop came from the rapid recovery from the sharp Covid-induced downturn of 2020.) Clearly, on that basis alone, 3.2 percent ain’t bean bag. And it would be much better than what Blinder thinks.
And it’s entirely …
(What’s Left of) Our Economy: Why Fed Forecasters — and a Big Shot Princeton Prof — May Soon Deserve “Fs”
This is performative politics again.
Members of the Federal Reserve’s Board of Governors are supposed to know a lot about the U.S. economy, so presumably their record of forecasting future developments should be pretty good. You could say the same for distinguished economist Alan S. Blinder, who served as the Fed’s vice chair from 1994-1996 and has taught economics for many years at Princeton University (Full disclosure: my alma mater, though I never took any of his classes.)
Why then, do their predictions for U.S. economic growth for 2025 seem so seriously and even increasingly off-base?
The Fed’s crystal ball results – which strongly influence its decisions on interest rates – include the collective judgments of all 19 Governors (including the partly rotating membership of the rate-setting Federal Open Market Committee). And they come out quarterly in the form of a document called the Summary of Economic Projections (SEP).
Their last forecast was issued in December, and their median prediction for 2025 yearly growth in inflation-adjusted terms was 1.7 percent. And some Governors believed it would hit only 1.5 percent. (More optimistic Fed chiefs wrote in two percent.)
In a January 21 op-ed piece, Blinder foresaw a better 2025 – writing that its real growth would be “around 2.5 percent.” But in this assessment of President Trump’s first year in office, dismissed it as “pretty much the same as in 2024.”
Why do these assessments seem to be complete bunk? First, as of the third quarter of last year, the price adjusted growth rate for the gross domestic product (GDP – the most widely used measure of the U.S. economy’s size and change thereof) was already running a bit north of 2.3 percent.
In other words, at that point, the Fed’s prognostications already seemed considerably wide of the mark. The official figures, moreover, were accelerating since the small (0.6 percent) drop in the first quarter that stemmed almost entirely from tariff front-running. And the second and third quarter expansions (3.8 percent and 4.4 percent, respectively) were both very strong. For some reason, however, the Fed Governors were apparently discounting this as of last December 10.
As a result, Blinder’s expectation of 2.5 percent real U.S. growth for 2025 looks closer to the mark. Yet subsequent evidence indicates that it, too, is almost certainly much too bleak.
After all, the widely followed GDP tracker issued by the Atlanta branch of the Federal Reserve since early January (before Blinder’s article appeared) has been estimating fourth quarter GDP growth at more than five percent. The latest edition pegs the figure at 5.4 percent.
The math reveals that if the Atlanta Fed’s judgments are accurate, inflation-adjusted 2025 growth will reach a shade over 3.2 percent.
To put that into perspective, if the Atlanta Fed projection holds, such annual expansion would be the strongest since 2005’s 3.5 percent. (There’s an exception – 2021’s 6.2 percent. But that pop came from the rapid recovery from the sharp Covid-induced downturn of 2020.) Clearly, on that basis alone, 3.2 percent ain’t bean bag. And it would be much better than what Blinder thinks.
And it’s entirely …
0 Comments
0 Shares
165 Views
0 Reviews
