David Beckworth There is a very interesting podcast with George Selgin. This exchange caught my eye:
Backworth: Okay, I mean we now deliver a predicted nominal GDP gap series, which is nice because it actually comes on a monthly basis. This is a quarterly series forecast, nominal GDP. But every month, blue-chip forecasters update their forecasts on nominal GDP, so this is an excellent metric. In fact, I was talking to Evan Koenig of the Dallas Fed recently. In fact, he was at the Hoover Monetary Policy Conference and he said they were looking at the nominal GDP in the Dallas Fed forecast. And they didn’t have this fancy nominal GDP gap model. They are only predicting basic nominal GDP. And they knew, man, the third, fourth trimester, it’s going to be on trend, and things should be tough soon.
Selgin: Evan was one of the sources I relied on. I follow very closely what he said on these subjects, so I drew on that subject too.
A year ago, I did not realize that the Fed had decided not to overshoot inflation in the future, less than the average inflation, which is required under the average inflation target. Or even to offset NGDP’s overshoot, which is appropriate under some reasonable interpretation. Flexible Average inflation target. If I had known, I would have been more concerned about inflation.
But the Fed knew. From what we now know about their FAIT policy regime and their NGDP forecast, their behavior seems to be increasingly understandable. What were they thinking?