Every quarter, the Federal Reserve’s Open Market Committee releases its economic prognostications for the U.S. economy, looking ahead at the predicted changes in GDP growth, unemployment rate and both PCE and core PCE inflation. These economic projections are provided to help those of us that are mere mortals get a sense of where the economy is headed and, in particular, the direction that the Federal Reserve’s braintrust is expected to take to keep the economy firing on all cylinders. With the Fed about to push rates up another 25 basis points and unemployment hovering around post-Great Recession lows, it is an interesting exercise to look back in time to the era before the Great Recession and see what the FOMC anticipated for the U.S. unemployment rate.
Let’s open by looking at what has happened to the U-3 headline unemployment rate from just prior to the Great Recession to the present keeping in mind that the latest recession officially started in December 2007 and ended in June 2009:
Now, let’s look at the Summary of Economic Projections from the October 30 and 31, 2007 FOMC meeting, the last meeting held before the Great Recession officially began and the first meeting where these projections were made available to the general public:
Here is a quote about unemployment from the summary:
And how did that turn out for Main Street America?
Here is a table showing what was predicted at the October 2007 meeting and what actually occurred:
While hindsight is always 20:20, even with all of the economic tools at their disposal, the FOMC seemed completely oblivious to the fact that a major recession was on the doorstep and that the headline unemployment rate would peak at more than double the rates that they predicted. It also appears that the members of the FOMC suffered from what can only be termed a bad case of “cluster thinking”.
Now, let’s look at the Summary of Economic Projections from the meeting held on January 27 and 28, 2009, during the dark days of the Great Recession:
Once again, the FOMC’s projections have no connection to reality.
Let’s skip ahead and look at the Summary of Economic Projections from the first meeting held after the official end of the Great Recession on November 3 and 4, 2009:
As was the case in January 2009, the range in the projected unemployment rate is quite broad but, as in the three earlier meetings, the members of the FOMC significantly underestimated the resilience of the American labor market and the effectiveness of their monetary policy experimentation on actually creating jobs for millions of unemployed workers as you can see on this table:
As we noted in the three earlier meetings, the members of the FOMC significantly underestimated the resilience of the American labor market and the effectiveness of their monetary policy experimentation on actually creating jobs for millions of unemployed workers.
Now that we have that background, let’s close this posting with a look at the latest version of the Summary of Economic Projections that has been released to the public from the FOMC meeting held on December 13 and 14, 2016:
Apparently, there is just no end to the exuberance that the members of the FOMC exhibit for their ability to keep the U.S. economy growing and Corporate America’s ability to keep American workers from sitting at home, watching television and waiting for their monthly government-funded unemployment stipend.
Let’s close this posting with a look at the length of economic cycles in the United States going back to 1854:
From this posting, we can clearly see that, in the hands of central bankers, economics is little more than “junk science”. The Fed’s inability to see the reality of the U.S unemployment situation is nothing less than mind-boggling.
Click HERE to read more.