Great Graphic: Federal Reserve Members and Their Forecasts

This Great Graphic was in the Wall Street Journal's web site. It was really meant to be interactive, so click here to access this feature and more information.    

The Wall Street Journal reporters offer a way to evaluate the accuracy of forecasts by members of the Federal Reserve.  It is based on speeches and Congressional testimony between 2009 and 2012.  Over 700 such forecasts were analyzed.  

Interestingly, Vice Chairperson, Janet Yellen scored the best overall, though not the top in any one of the three categories.  In terms of relevant experience, ability to work with different types of people, an ability to integrate other people's views, Yellen may indeed be the superior candidate to replace Bernanke, the accuracy of her forecasts is not really a relevant issue.   

There are many skills that the head of a central bank needs and being able to accurately forecast inflation, employment and GDP may be helpful, but hardly essential.   Economic forecasts are only one part of what a central bank does.  More important than being able to forecast , may be understanding the range of policy options to any set of circumstances and their advantages (benefits) and disadvantages (costs and risks).

Communication appears to be increasingly important skill for the head a central bank.   Understanding and respecting the institution, and its gravitas, are also important.   Grasping the complex, and sometimes, contradictory relationship, between economic, monetary and fiscal policy is critical.  

As investors know, the view of any one economist may be nice to know, but what is more important is what has been discounted:  what is expected and how to respond to the unexpected.  Even if the accuracy of her forecast do not ensure Yellen replaces Bernanke, such an analysis can do nothing but bolster her own gravitas.  

What makes someone a good banker and regional Federal Reserve President is not necessarily being a good forecaster.  The same is true about being a Governor of the Federal Reserve Board.  These scores do not say anything about their competence or the lack thereof.    That said, I'll probably pay a little more attention to what Williams says about inflation, what Kocherlakota says about the labor market, and what Dudley says about growth.