Yellen’s Senate Hearing: Fed’s Forecasting Has Lost All Credibility

by Tho Bishop

Today Janet Yellen came before the Senate Banking Committee to answer questions following last week’s announcement that the Fed will keep the Federal funds rate steady in light of May’s devastating job numbers. While the big media headline focused on Yellen echoing the Bank of England’s warnings against Brexit, the biggest take away may be Yellen’s tacit admission that the Fed’s consistently poor track record of projecting rate increases has crippled its credibility in financial markets.

Yellen’s confession was the result of questioning from Senate Banking Chairman Richard Shelby, who asked whether the Fed’s “frequently incorrect predictions of interest rate increases” have damaged the effectiveness of the Fed’s forward guidance. For those unfamiliar with the term, “forward guidance” is a communications technique employed by the Fed as a policy tool. As the Federal Reserve’s website explains:

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