Fed Forecast Might Not Be as Cautious as You Think

Photograph by Paul Taggart/Bloomberg

Shipping containers at the Port of New Orleans.

While administration officials are cautious about touting any improvements in the U.S. economy right now, it turns out the Fed is more optimistic than Wall Street.

The Federal Reserve projects 2.4 percent to 2.9 percent growth this year. Bloomberg’s Caroline Salas Gage says the median of 55 estimates from Blue Chip Economic Indicators is 2.3 percent. All but 16 of the predictions were below the bottom of the Fed’s so-called central tendency.

What’s behind the disconnect?

Central bankers are more optimistic about the impact of their stimulus than the analysts. Ben Bernanke’s Fed has kept the benchmark federal funds rate near zero since December 2008 and has undertaken asset purchases totaling $2.3 trillion.

“The connective tissue in the models has just broken down,” Wells Fargo Securities LLC chief economist John Silvia told Bloomberg. “The idea in the old days was you change interest rates and people buy houses.” Now “when the Fed lowers rates, that whole credit-money-multiplier process doesn’t work as well.”

 

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