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A Look at the Accuracy of Policy Expectations

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Abstract

Since the 1980s, the primary policy tool of the Federal Reserve has been the federal funds rate. Because expectations of the future path of the funds rate play a central role in the term structure of interest rates and thus the monetary transmission mechanism, it is important to know how accurate these expectations are in predicting the funds rate. In this post, we investigate this issue using a well-known survey of private sector forecasters. We find that forecasts tend to over-predict the funds rate in easing cycles and under-predict it in tightening cycles. In addition, while forecasts during tightening cycles have become more accurate over time, forecast accuracy during easing cycles has not improved.

Suggested Citation

  • Richard K. Crump & Stefano Eusepi & Emanuel Moench, 2011. "A Look at the Accuracy of Policy Expectations," Liberty Street Economics 20110822, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86762
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    Cited by:

    1. Richard K. Crump & Stefano Eusepi & Emanuel Moench & Bruce Preston, 2021. "The Term Structure of Expectations," Staff Reports 992, Federal Reserve Bank of New York.
    2. Shuo Cao & Richard K. Crump & Stefano Eusepi & Emanuel Moench, 2020. "Fundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates," Staff Reports 934, Federal Reserve Bank of New York.

    More about this item

    Keywords

    macroeconomic forecasts; Taylor Rule; Policy expectations;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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