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Fed Projections Have No Real Predictive Value

Fed projections
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EDITOR'S NOTE: Mish Talk takes a deep dive into Fed projections, both past, and present, and explains why they have “no predictive power.” Analyzing the charts, Mish Talk writes, “analysis of Fed Dot Plots shows how totally clueless the Fed has been.” They also note that “Amusingly, the Fed considers "forward guidance" a tool. It's a tool alright, for front-running interest rate bets until they blow up. The curious thing about all of this is the Fed actually believes and takes cues from the market while giving cues to the market with its own projections!” They use past examples, such as Fed chair Ben Bernanke having no clue the housing crisis was coming back in 2007, to illustrate their point. The author concludes by sarcastically noting, “the ‘beauty’ of Fed forward guidance is that it eventually pushes the forward expectations curve in the direction the Fed wants it to go.”

If you think the Fed, Fed Fund futures, or current rates predict anything, you may wish to reconsider.

Median Fed Rate Hike Projections vs Current Yields 2021-12-22

Photo: Mish Talk

Median Fed Projections

Fed Rate Hike Projections FEDTARMD 2021-12

Photo: Mish Talk

Median Fed Projections

Fed Rate Hike Projections FEDTARMD 2021-12

Photo: Mish Talk

The St. Louis Fed Fred repository recently added a data series on Fed projections. My graph reflects the Median Projections FEDTARMD Series. 

Unfortunately the data is annual and it only starts with 2021, looking ahead.

Past projections would be more than a bit humorous if Fred had the data.

The observation dates all say January, but they are really end-of-year projections. Since the data is annual, I used monthly averages which is a bit off as the Fed does not meet once a month. 

I added the Factor column to the data download. It is the monthly average rate hike that gets to the Fed's yearend projections. 

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