A comprehensive analysis of more than 700 economic forecasts between 2009 and 2012 by Federal Reserve policymakers found that the "doves" predicted more accurately than the "hawks," according to the Wall Street Journal.
A dove in this context means a policymaker who backs aggressive monetary stimulus, without fearing an excessive rise in inflation as a result of quantitative easing. A hawk is someone who fears that Federal Reserve money printing will lead to excessive inflation.
The least accurate forecasts, compiled from public speeches and Congressional testimony, came from central bank hawks.
Janet Yellen, the Federal Reserve’s current vice chair and a front-runner to replace chair Ben Bernanke in January, was the most accurate forecaster overall. She has said in the past that a slow economic recovery means that soaring inflation is unlikely.
These economic forecasts, which usually cover economic growth, inflation and employment rates, heavily influence central bank decisions on interest rates and other monetary policy. Those decisions in turn directly impact the economy.
The current decision-making controversy is over if and when to scale back the Fed’s $85 billion monthly bond purchases. The Fed has said that it will only taper gradually, and then only if a genuinely improving U.S. economy warrants it.
Yellen and all the other Fed policymakers declined to comment to the Wall Street Journal on the results of the analysis.
Since the current economic slowdown is unlike most past economic cycles, it’s unclear the extent to which economists should base their forecasts on historical data and past economic models.
Warnings about inflation haven’t yet materialized into actual uptick in prices, partly because much of the money the Federal Reserve injects into the economy stays at banks, instead of being lent to consumers.