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It’s tough to make predictions…especially about the future


FRED recently expanded its collection of FOMC projections. These forecasts include the input of all FOMC participants, who use different statistical models and may also have different assumptions about economic factors related to the forecast. One example is the price of oil: The economic outlook changes as the price of oil changes, but no one really knows where that price will be a year from now. So a forecaster must make some assumption about the price of oil if it’s an input in his or her forecasting model. The same applies to many other assumptions about other related factors.

The graph above shows the range of these forecasts among the FOMC participants for GDP growth over the next few years. The wider the range, the more uncertain the outlook. As we can see, this range becomes slightly wider the farther we go into the future.

You may also wonder why there’s a forecast for 2015 when we’re already in 2016. Don’t we know what happened in 2015 yet? Not quite. Because these forecasts pertain to the growth rate from the fourth quarter of one year to the fourth quarter of the next year, we need to wait for the year to be over and then for the statistics to be released. That takes time. Moreover, the first data releases are subject to revisions—sometimes substantial ones. Also, these projections in the graph are based on the last available release from the FOMC, which in this case was in December 2015, which was based on forecasting exercises that were made even earlier. (This description won’t apply well, if at all, if you’re reading it a few months after it was posted.)

How this graph was created: Start with the FOMC projections release, click on the “GDP” tag, select the series you want, and click “Add to Graph.”

Suggested by Christian Zimmermann

View on FRED, series used in this post: GDPC1RH, GDPC1RL, GDPC1RM


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