26 May 2016 at 13:03 GMT
The US Federal Reserve's forecasting is "a lot better" than observers recognise, says former president of the Minneapolis Fed, Narayana Kocherlakota, a Bloomberg View columnist. Criticism of the Fed’s forecasting has focused largely on its failure to notice, as late as mid-2008, the depth and persistence of the recession that the global financial crisis would cause, but the Fed’s forecasters did better after the recession, Kocherlakota says. For instance, the Fed's forecasts from October 2010 captured a slow but steady recovery in unemployment and core inflation, he says. How did the Fed get it so right? "From 2011 through 2015, the Fed managed the economy with two complementary goals: Get the unemployment rate down to 5% (from near 10%) and keep inflation in a range between 1% and 2%," Kocherlakota says. The Fed adjusted policy to cope with shocks and hit these goals. "In other words, the forecast for unemployment and inflation was accurate because the Fed made it so," he says.
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