PT Solid Gold Berjangka | Powell Urges Fed Economists to Be Flexible on Forecast Methods

02:18 09 November in Fiscal & Monetary, PT SGB, SOLID GOLD BERJANGKA | SOLID GROUP

Federal Reserve The Fed Jerome Powell

Solid Gold Berjangka | The article discusses Federal Reserve Chair Jerome Powell’s remarks during a conference commemorating the 100th anniversary of the Fed board’s Division of Research and Statistics. Powell emphasized the need for the central bank to combine intellectual rigor with flexibility and agility when forecasting the economy, particularly during times when the economy faces unpredictable shocks such as global financial crises or pandemics.

Key points from the article include:

  1. Powell highlighted that even with sophisticated economic models, the economy can often surprise forecasters. He stressed the importance of thinking outside these models during unprecedented and unpredictable events.
  2. The article mentioned that the Fed’s Division of Research and Statistics (R&S) provides economic forecasts to the Federal Open Market Committee (FOMC), which sets interest rates. R&S also conducts research on policy and economic topics. Stacey Tevlin currently leads the division, becoming the first woman to do so.
  3. The Fed faced challenges in forecasting the post-pandemic economy, with staff initially characterizing inflation as “transitory” in 2021 before it continued to accelerate in 2022, reaching a peak annual rate of 7.1% in June of that year. The staff also made forecasts about a “mild recession” following a series of bank failures in March 2023, only to reverse that prediction a few months later.
  4. Powell acknowledged the significant stakes involved in economic forecasting by Fed staff, describing it as a high-stakes endeavor that requires courage and humility.
  5. The article mentioned the upcoming meeting of Fed officials on December 12-13, where they will consider fresh reports on retail sales, hiring, and inflation. Futures markets are not expecting an interest rate increase and anticipate that the current benchmark rate of 5.25% to 5.5% will mark the peak of the tightening cycle.

In summary, the article underscores the challenges and uncertainties the Federal Reserve faces in forecasting the economy and highlights the importance of flexibility in responding to unexpected economic developments.