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Fed Errs on the High Side

The Federal Reserve has historically been too optimistic with its monetary-policy projections.

Roland Czerniawski: The Federal Reserve has historically overestimated the future fed-funds rate in their forecasts. In this week's chart, we look at historical FOMC fed-funds rate projections. The green line represents the actual effective fed-funds rate, while the other various colored lines represent the Fed's projections for a particular year at any given point in time. 

For example, in 2012, the Fed forecast that the fed-funds rate would be around 1% by the end of 2014. Starting in 2013, they began adjusting that forecast down to just 25 basis points. A similar pattern can be noticed in projections for 2015, 2016, and 2017, when the Fed was consistently raising their fed-funds rate forecasts until late 2014. According to those earlier forecasts in 2014, the Fed thought that rates would be well above 1% by the end of this year, which we now know was a long overshot. 

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