Persistently Over-Optimistic Fed Admits There Is Persistent Over-Optimism About The US Economy

In a stunningly honest reflection on itself (and its peer group of professional prognosticating panderers), The Federal Reserve's San Francisco research group finds that – just as we have pointed out again and again – that since 2007, FOMC participants have been persistently too optimistic about future U.S. economic growth. Real GDP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Possible explanations for this pattern include missed warning signals about the buildup of imbalances before the crisis, overestimation of the efficacy of monetary policy following a balance-sheet recession, and the natural tendency of forecasters to extrapolate from recent data. The persistent bias in the track records of professional forecasters apply not only to forecasts of growth, but also of inflation and unemployment.