Washington’s Most Shocking Open Secret: The Fed’s Smoking Gun?

The Marriner S. Eccles Federal Reserve Board Building (photo via Wikimedia Commons, CC BY-SA 3.0)
The Marriner S. Eccles Federal Reserve Board Building (photo via Wikimedia Commons, CC BY-SA 3.0)

As noted in my most recent Forbes.com column, it is now officially an open secret that the Fed always gets its forecasts egregiously wrong:

One of the world’s top monetary reporters, Ylan Q. Mui, to make a delicate observation at the Washington Post’s Wonkblog, in Why nobody believes the Federal Reserve’s forecasts. Mui:

“The market recognizes that the Fed has repeatedly erred on the optimistic side,” said Eric Lascelles, chief economist at RBC Global Asset Management. “Fool me 50 times, but not 51 times.”

Even the government’s official budget forecasters are dubious of the Fed’s own forecast.

And:

To give Ms. Mui’s competition its due, Dr. Richard Rahn at the Washington Times last April crisply noted:

“The Federal Reserve had forecast the U.S. economy to grow about 4 percent near the beginning of each year for the last five years. But during each year, the Fed was forced to reduce its forecast until it got to the actual number of approximately 2 percent. (Other government agencies have been making equally bad forecasts.) These mammoth errors clearly show that the forecast models the official agencies use are mis-specified and contain incorrect assumptions.”

My own observation about this:

If NASA suffered from comparable inaccuracy the manned spaceflight program would have been shut down by an endless series of Challenger-type catastrophes many years ago.   With forecasts this bad is it any wonder the American economy continually crashes and burns?

[I]t falls to me, in my role as the simpleton on this beat, to declare:

The Emperor has no clothes.

I’d welcome being set straight if the Board of Governors is prepared to contest this simpleton. Surely Chair Yellen or Vice Chair Fischer — both first rate economists and authentically honorable public servants — will support the Brady-Cornyn Centennial Monetary Commission legislation lately approved by Chairman Hensarling’s House Financial Services Committee.

The implications of Ms. Mui’s column are quite shocking.  It might be Washington’s most shocking Open Secret.

To read the full column, click here.

Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles in Action’s Senior Advisor, Economics.