Fed Dot-Plot Forecasting Fiascos: June 2008 and June 2021

The Federal Reserve chairman and Federal Open Market Committee (FOMC) always imagine that they can prevent recession by anticipating trouble in time to stop it. If that were true, soft landings would be the norm rather than a freak rarity. At his July 31 press conference, Fed Chair Jerome Powell remarked, "We know that reducing policy restraint ... too late or too little could unduly weaken economic activity and employment.... If the labor market were to weaken unexpectedly, we are prepared to respond. Policy is well positioned to deal with the risks and uncertainties that we face." Prepared and well positioned? That would be a unique surprise. The Fed has an almost perfect record of raising the federal funds rate on bank reserves only after inflation surges are well underway. And it has an even better record of cutting interest rates only after recessions are likewise underway, always too late and usually too much.