Federal Reserve Chair Jerome Powell, while speaking at the centennial celebration of the Fed board’s Division of Research and Statistics (R&S) on Wednesday, emphasized the need for agility in economic forecasting. He highlighted that unpredictable global events such as financial crises or pandemics often lead to unexpected economic outcomes.
R&S, under the leadership of Stacey Tevlin, provides eight annual economic forecasts to the Federal Open Market Committee. However, Powell refrained from commenting on monetary policy or future economic outlooks during his address.
In the post-pandemic era, economic forecasting has proven to be a challenging task. For instance, inflation rates peaked unexpectedly at 7.1% in June 2022, contradicting the Fed's initial prediction of "transitory" inflation.
Furthermore, following a series of bank failures in March 2023, the Fed had anticipated a mild recession. This forecast was later revised as the economy demonstrated growth at its long-term trend rate. Powell's emphasis on agility underscores the need for adaptability in response to such unforeseen economic shifts.
The Fed Chair's remarks underscored the importance of state-of-the-art mathematical models in economic forecasting but also pointed out their limitations in predicting outcomes during times of global crises. The focus on agility in economic forecasting is seen as a key factor in navigating future uncertainties and ensuring appropriate policy responses.
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