Stacey, thank you for the opportunity to be a part of this celebration. It’s great to be here to honor the Research and Statistics Division (R&S) and it’s humbling to see so many Fed people who served the institution over long and distinguished careers have come back for this great opportunity. The Fed is one of those places where you can work for a decade and still feel like a newbie.Thank you for reading this post, don't forget to subscribe!
For those listening outside this room, I will briefly outline the responsibilities of the R&S. A large portion of the Division, along with other divisions across the Board, is engaged in the creation of the Tealbook, which contains staff forecasts for the U.S. economy as well as a large amount of data and analysis on financial and economic issues, and which our The funds are submitted to the Federal Open Market Committee (FOMC) before the meetings.
Outside of the FOMC meeting cycle, R&S deploys its experts wherever they are needed across the board, providing critical input to work on financial stability, bank merger analysis, and many other topics. R&S is also an ongoing source of expert information for policy makers. If board members have questions about even the most arcane workings of some aspect of the economy, they can send an email and, in no time, be sitting down with some of the best-informed experts on that topic. Most of the time, these are R&S economists. During the pandemic, when questions arose about how the computer chip shortage was affecting auto production or how businesses were responding to backlogs at U.S. ports, R&S provided detailed information on these topics. Among its other activities, the Board of Governors is one of the world’s most productive economic research institutions, and a large part of that work takes place inside the R&S, promoting a healthy economy and a strong and stable financial system. Supports our mission.
I’ve talked about the research—now I come to the data. In addition to collecting data from many sources outside the Federal Reserve, the R&S itself is the source of some of the most important data on the economy and the financial system. Our consumer credit data provides financial markets and the public with an important indicator of household spending and balance sheet strength. Every month, the Industrial Production Report gives us information about how well certain sectors of the economy are performing, particularly the manufacturing sector. The R&S is also responsible for the financial accounts of the United States, a quarterly compilation of assets, liabilities, and transactions for various sectors of the economy. And every three years, the R&S conducts the Survey of Consumer Finances, a major source of detail and insight into the state of households in the economy. The latest survey was published only last month. These and other data series produced by R&S are an important public service.
I want to focus in more detail on forecasting, which is perhaps the most important of the roles of R&S. The US economy baseline forecast produced by R&S, along with simulations of half a dozen possible alternative paths, forms the largest part of the essential foundation that enables us to achieve our dual-mandate goals.
Some people are attracted to extremely challenging tasks. The people at R&S are the people who have chosen the task of predicting the path of the US economy eight times a year for the FOMC meetings, with ongoing updates between meetings. They do it on the biggest stage and with the highest stakes, knowing that the economy often surprises us.
Many qualities are required to do this work well.
I would start with a deeper commitment. The work gives you everything you have to give. To do this work well, you have to love it.
The work also requires integrity – policymakers trust R&S to give us their best thinking, not to distort the results for any reason.
Routine forecasting also requires a systematic approach and a high level of intellectual rigor. Ask Stacey and his colleagues to explain a certain aspect of forecasting, and you’ll find they have a clear explanation in a rigorous framework.
That intellectual rigor has to be combined with flexibility and agility. Economic models can do a very good job of understanding the functioning of the economy over the past decades. Of course, even with cutting-edge models and in relatively calm times, the economy often surprises us. But our economy is flexible and dynamic and can sometimes withstand unexpected shocks such as a global financial crisis or a pandemic. At that point, forecasters have to think outside the models.
This work also requires a great deal of courage and humility. And, ultimately, the decision. To complete this rigorous process, good judgment must be based on knowledge and experience.
Perhaps the most important legacy of the last century for the Research and Statistics Division is the resilience, creativity, energy, rigor and commitment with which R&S has faced the many challenges we and our country have faced over that period. Of history. On behalf of the Board and the FOMC, thank you for this, and hearty congratulations on your first 100 years of service to the public.