Evaluating FOMC forecasts

Abstract

Monetary policy outcomes have improved since the early 1980s. One factor contributing to the improvement is that Federal Reserve policymakers began reporting economic forecasts to Congress in 1979. These forecasts indicate what the Federal Open Market Committee (FOMC) members think will be the likely consequence of their policies. We evaluate the accuracy of the FOMC forecasts relative to private sector forecasts, the forecasts of the Research Staff at the Board of Governors, and a naı̈ve alternative. We find that the FOMC output forecasts were better than the naı̈ve model and at least as good as those of the private sector and the Fed staff. The FOMC inflation forecasts were more accurate than the private sector forecasts and the naı̈ve model; for the period ending in 1996, however, they were not as accurate as Fed staff inflation forecasts.