Evaluating Federal Open Market Committee forecasts

Monetary policy outcomes have improved since the early 1980s. One factor contributing to the improvement is that Federal Reserve policymakers reporting economic forecasts to Congress in 1979. These forecasts indicate what the Federal Open Market Committee (FOMC) members think will be the likely consequence of their policies. We evaluate the accuracy of the FOMC forecasts relative to private sector forecasts, the forecasts of the Research Staff at the Board of Governors, and a naive alternative. We find that the FOMC output forecasts were better than the naive model and at least as good as those of the private sector and the Fed staff. The FOMC inflation forecasts were more accurate than the private sector forecasts and the naive model; for the period ending 1996, however, they were not as accurate as Fed staff inflation forecasts.