Jerome Powell Urges For A More Flexible Approach To Economic Forecasting: 'The Economy Frequently Surprises Us'

Federal Reserve Chair, Jerome Powell, has highlighted the need for greater adaptability in the forecasting techniques used by Fed economists, moving beyond traditional mathematical models.

What Happened: According to a report by Bloomberg, Powell emphasized the importance of intellectual rigor, agility, and flexibility in economic forecasting. He stressed that despite sophisticated models, the dynamic and adaptable economy often surprises us, particularly during unforeseen events such as global financial crises or pandemics.

While addressing a conference marking the 100th anniversary of the Fed board's Division of Research and Statistics, currently directed by Stacey Tevlin, Powell refrained from commenting on the current prospects for monetary policy or the economy.

“Even with state-of-the-art models and even in relatively calm times, the economy frequently surprises us,” said Powell.

See Also: October Jobs Report Expected To Show Dip — Here’s How Markets May React

The division, recognized as R&S, provides the Federal Open Market Committee with an economic forecast eight times a year, in addition to updates on current data and research on policy and economic topics.

Why It Matters: In the post-pandemic economy, forecasting has proven challenging for the Fed. Inflation escalated beyond expectations in 2022, yet Fed staff labeled it as “transitory” for most of 2021. Powell’s call for flexibility and agility in forecasting methods seems to be a response to these challenges.

Just earlier this month, the Federal Reserve held interest rates steady at 5.25% to 5.5% during its November meeting, as reported by Benzinga. This decision, widely anticipated by the market, left room for future adjustments based on evolving economic conditions.

Photo: Courtesy of International Monetary Fund on Flickr

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