POLITICS: PennAve

Wall Street Journal analysis: Janet Yellen is the Fed’s most accurate forecaster

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PennAve,Joseph Lawler,Economy,Federal Reserve,Ben Bernanke,Budgets and Deficits

Federal Reserve Vice Chairwoman Janet Yellen beats out all her colleagues when it comes time to make predictions — and that includes the chairman, Ben Bernanke.

The Wall Street Journal’s Jon Hilsenrath and Kristina Peterson combed through more than 700 predictions about the economy made over the past few years by 14 Fed governors and regional Fed presidents. They found that Yellen’s prognostications were the most likely to be borne out in the data.

Yellen is widely thought to be one of the frontrunners to replace Bernanke when his term expires in January. Considered by many to be one of the more dovish officials at the Fed, Yellen last week gained the endorsement of liberal Democratic senators. President Obama has said that he has narrowed down the list of candidates for the Fed’s top spot, but White House officials said last week he would not make a decision until fall.

Hilsenrath and Peterson write that the best forecasters at the Fed were doves, meaning that they lean toward more aggressive monetary stimulus. After Yellen, the member with the most reliable forecasts was William Dudley, the president of the New York Fed and the former chief economist for Goldman Sachs. Bernanke was the fifth-best at predictions, following Fed governor Elizabeth Duke, an outgoing George W. Bush appointee, and Dallas Fed President Richard Fisher, a noted hawk.

Charles Plosser, the president of the Philadelphia Fed, has the distinction of having made the worst predictions of all those studied by the Wall Street Journal. Plosser consistently overestimated the strength of the recovery.

Senate Democrats who endorsed Yellen cited her “prescience” regarding economic developments as a reason to support her. Supporters point to her warnings about subprime mortgages in 2007 as an example of her ability to spot trends as they develop.

Larry Summers, the former Obama and Bill Clinton economic adviser who is thought to be Yellen’s top competitor, was not included in the Wall Street Journal’s analysis because he is not a member of the Fed. Since leaving the Obama administration in 2010, Summers has been teaching at Harvard University, giving lectures and consulting for Citigroup and other financial firms.

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