EconomicDynamics spoke with St. Louis Fed President James Bullard in an interview that didn’t touch on the current outlook but was revealing in other ways.
We [central banks] do not really forecast anyway. What we do is we track the economy. Most actual forecasting day to day is really just saying: What is the value of GDP last period or last quarter? What is it this quarter? And what is it going to be next quarter? Beyond that we predict that it will go back to some mean level which is tied down by longer-run expectations.
What does it mean? In a changing world or a New Normal the Fed will be woefully behind because it relies on models that assume the future will be the same as the past.
In most of the rest of the interview Bullard comes across sounding like Greenspan — lacking humility or creativity. At other times, he makes good points about inflation targeting and taking a broader view of economies, beyond their borders.
