Fed Paper: Considerable uncertainty surrounds all FOMC economic projections

According to a new research paper published by the Federal Reserve (Fed) overnight, considerable uncertainty surrounds all macroeconomic projections of the FOMC members.

Key Points from the report:

“First, if past performance is a reasonable guide to future accuracy, considerable uncertainty surrounds all macroeconomic projections, including those of FOMC participants.”

“Second, different forecasters have similar accuracy.”

“Third, estimates of uncertainty about future real activity and interest rates are now considerably greater than prior to the financial crisis; in contrast, estimates of inflation accuracy have changed little.”

“Finally, fan charts-constructed as plus-or-minus one RMSE intervals about the median FOMC forecast, under the expectation that future projection errors will be unbiased and symmetrically distributed, and that the intervals cover about 70 percent of possible outcomes-provide a reasonable approximation to future uncertainty, especially when viewed in conjunction with the FOMC's qualitative assessments. That said, an assumption of symmetry about the interest rate outlook is problematic if the expected path of the federal funds rate is expected to remain low.”