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Federal Reserve: Economic Prognosticators or “Just Winging It”?

Posted by Larry Doyle on October 21, 2010 6:47 AM |

All hail the mighty and powerful Federal Reserve!!

Is that right?

Are we all supposed to bow down and prostrate ourselves at the throne of Ben Bernanke and assume he is ‘all knowing’? The fact is the Federal Reserve has assumed a mantle of being ‘all powerful’ but who in our country is willing to challenge the Federal Reserve? Are we supposed to merely turn over the economic fortunes of our nation and our children’s future to one individual and one institution without aggressively calling them on the carpet? What happened to the calls for increased Fed transparency? What happened to the pressure on the Fed to justify their actions? The silence is deafening.

Those with a degree of sense on cents understand and appreciate the following:

1. With very few exceptions, our economic lightweights on Capitol Hill do not truly comprehend enough of what is going on in the economy to challenge the Fed.

2. The Federal Reserve is not independent but has become a politicized organization and deeply intertwined in the Wall Street-Washington crony capitalism.

3. With very few exceptions, nobody checks on the Fed’s economic outlooks and more importantly on the Fed’s past economic projections. As we literally turn over our economy and our future to one institution and one central banker, aren’t we supposed to keep him honest and check his work? Damn right we are!!

What economic statistic most concerns the American public? Jobs, right? So, let’s go back two years and check the ‘all knowing and all powerful’ Federal Reserve’s call on unemployment.

From the Federal Reserve’s Minutes of the Federal Open Market Committee in January 2009, we learn the following. For clarity, the first 4 boxes are the Central Tendency (excludes the three highest and three lowest projections) of Fed projections for the Unemployment Rate for 2009, 2010, 2011, and the Longer Term. The next 4 boxes are the Range (includes all Fed governors projections) for those same time periods. The October projections were made in conjunction with the FOMC meeting in October 2008.

Unemployment rate 8.5 to 8.8 8.0 to 8.3 6.7 to 7.5 4.8 to 5.0 8.0 to 9.2 7.0 to 9.2 5.5 to 8.0 4.5 to 5.5
October projection 7.1 to 7.6 6.5 to 7.3 5.5 to 6.6 n.a. 6.6 to 8.0 5.5 to 8.0 4.9 to 7.3 n.a.

What do we learn?

A lot.

Two years ago this month, the Fed projected our Unemployment Rate for 2010 would fall somewhere between 6.5 to 7.3%. A mere few months later, they had revised that range to 8.0 to 8.3%. What might they think now about those calls given our current Unemployment Rate of 9.6% — and likely massively manipulated at that?

Well, first off, the Fed and Bernanke specifically receive an “F” for these projections.

Secondly, the politicization of the Fed has compromised this institution and its projections. No doubt about it.

Thirdly, the Fed projected that our economy would truly be improving with a downward trend in unemployment over the last few years.

We have no other choice than to assess our Fed governors as no better than the boys down at the corner barroom in being able to accurately prognosticate what lies ahead on our economic landscape…….yet we are supposed to trust them as they spend trillions of dollars manipulating our markets and economy?

Are you kidding me?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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