What if central banks could forecast? - Financial Markets Outlook

11/26/2009

The last week has delivered the latest set of FOMC minutes, along with the Fed’s own forecasts for the major US macroeconomic variables
Some of the figures make curious reading – indeed, some of them look almost impossible to achieve
The growth figures bear a close resemblance to a “V-shaped” recovery, which might explain the highly optimistic unemployment views
The inflation forecasts remain very low – more probable, in our opinion, if a little inconsistent with the rest of the forecasts
However, if the Fed is right (and it has no proven track record), then it does imply much higher rates than the market is
forecasting, and much higher bond yields too
It also implies a dollar rally against the EUR when compared against the ECB’s own staff forecasts – we would not take these conclusions too literally

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