FOMC Forecasts: Are They Useful for Understanding Monetary Policy?

Monetary policy is forward looking and, in its pursuit of transparency, it communicates its economic projections to the public at large. As a result, there is interest in whether these projections are credible. We argue that central to that credibility is the public's ability to replicate the FOMC's projections using publicly available data only. In other words, is it possible to anticipate, reliably and independently, what the FOMC will anticipate for the federal funds rate? To address this question, we assemble FOMC projections from 1992 to 2017; examine their statistical properties; postulate models to predict FOMC projections; and estimate the parameters of these models. We are not arguing that the FOMC determines their projections using these models. Rather, these equations are the ones that the public could use to forecast FOMC forecasts and to anticipate interest-rate decisions.