PRINTMarket Update -- Economic Comment
November 19, 2007
The Fed has decided to increase the frequency and expand the content of the economic forecasts made available to the public. Instead of publishing biannual forecasts, the Fed will now publish forecasts every three months. Also, since the Fed claims to be focused on medium-term economic prospects, the forecasts will now cover a three-year period. More variables will also be forecasted including headline and core personal consumer expenditure inflation, the unemployment rate, and real GDP growth.
Since each FOMC member will submit a personal forecast that embodies their assumptions, including future monetary policy, it will be important for observers to recognize that the central tendencies of the range of predictions will not necessarily be indicative of a generally expected outcome. I think the real value in these forecasts will be the explanation behind the forecasts and the change in forecasts from one period to the next.
We expect the first set of forecasts, released on November 20 as part of the minutes from the October 31 FOMC meeting, to portray a relatively optimistic outlook for the economy compared to the general sense of gloom felt in the financial markets. Our own forecast is gloomy, and it could get gloomier if monetary policy is not loosened as much as we forecast; we expect the federal funds rate to fall another 150 basis points over the next year.
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