The chart at the end of the post says more to me that any words spoken….
First, from the release…
Staff Economic Outlook
In the forecast for the meeting, which was prepared prior to the release of the advance estimates of the first-quarter national income and product accounts, the staff revised up its outlook for economic activity in response to recent favorable financial developments as well as better-than-expected readings on final sales. Consumer purchases appeared to have stabilized after falling in the second half of 2008, and the steep decline in the housing sector seemed to be abating. However, the contraction in the labor market persisted into March, industrial production again fell rapidly, and the broad-based decline in equipment and software investment continued. Conditions in financial markets improved more than had been expected: Private borrowing rates moved lower, stock prices rose substantially, and some measures of financial stress eased.The staff’s projections for economic activity in the second half of 2009 and in 2010 were revised up, with real GDP expected to edge higher in the second half and then increase moderately next year. The key factors expected to drive the acceleration in activity were the boost to spending from fiscal stimulus, the bottoming out of the housing market, a turn in the inventory cycle from liquidation to modest accumulation, and ongoing gradual recovery of financial markets. The staff again expected that the unemployment rate would rise through the beginning of 2010 before edging down over the rest of that year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised up slightly.
The staff raised its near-term estimate of core PCE inflation because recent data on core and overall PCE price inflation came in a bit higher than anticipated. Beyond the near term, however, the staff anticipated that the low level of resource utilization and a gradual decline in inflation expectations would lead to a deceleration in core PCE prices. Looking out to 2011, the staff anticipated that financial markets and institutions would continue to recuperate, monetary policy would remain stimulative, fiscal stimulus would be fading, and inflation expectations would be relatively well anchored. Under such conditions, the staff projected that real GDP would expand at a rate well above that of its potential, that the unemployment rate would decline significantly, and that overall and core PCE inflation would stay in a low range.
Here is the chart I was looking at:
Notice every metric they are now forecasting is worse than their expectations in January? This goes back to Bernanke saying in 2007 he thought the housing crisis would “be contained” and “would not effect overall economy”. The Bernake Fed has been consistently overly optimistic in its forecasts only to then have to lower them.
Now, the reason for being optimistic is obvious, to instill confidence in a fear ridden environment. But, after a while that strategy begins to backfire as folks begin to discount everything the Fed says as they begin to expect actual results to come in worse than expected. Then it becomes a “how much worse” guessing game.
I get the whole transparency effort vs Greenspan’s ramblings, but if we are going to do it this way, then the transparency has to be 100% honest and not an attempt to steer investor sentiment in a particular direction. In that case, the transparency is simply “transparent manipulation”.
Now, I also understand that no estimates are perfect, BUT, when over the course of a few years they almost to a 100% rate err in the same direction, then it is either intentional, OR the methodology to make them is flawed. Either scenario from the Fed is bad.
Just give it to us straight Ben, we can handle it far better than you think we can…
Disclosure (“none” means no position):