Bernanke Models Prove Faulty as Forecasts Succumb to Change

Chairman Ben S. Bernanke and his Federal Reserve colleagues are preparing to meet next week as two-year Treasury yields near a record low signal a U.S. economy on the knife’s edge between growth and contraction.

Guiding their assessment of the outlook for the world’s largest economy will be forecasts contained in the so-called Teal Book, a confidential staff report with a blue-green cover. Policy makers’ confidence in those forecasts may be tempered as the course of the expansion has confounded their expectations.

Of 12 Fed staff forecasts since the beginning of 2010, seven have been downward revisions to the near-term outlook, according to minutes of Federal Open Market Committee meetings. This year, the outlook was raised in January and lowered three times since as a stream of data on weakness in employment and consumer spendingsignaled threats to a recovery from the deepest recession since the Great Depression.

Bloomberg, 5 August 2011

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