Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

If I may make a follow-up comment: The issue to me is not so much who wins the horse race. Obviously, we can point to particular cases where one approach is superior by looking at the statistical evidence you present. In fact, in recent periods I believe the market forecast has been perhaps ever so slightly better but not significantly different. For me that is not the issue. It’s exactly what you just said—that if we were to condition the Greenbook baseline on the market forecast, then it would display very clearly what is different in your view from the market expectation.

Let me also refer to another example, which was the beginning of the recession. In that case the market was predicting declines in rates before you were. If you had used the market view as your conditioning assumption for the forecast, you would have asked the question, Is the market detecting some weakness in the situation that we don’t see? That was the key question at that time, just as the key question now is whether the market is picking up the possibility of either some inflationary pressure that we don’t see or a boom that is going to outrun what is currently our best guess regarding the economy’s performance. It seems to me that using the market assumption would help us to focus on those very key questions.

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