The Fed is fed up with data revisions – Jan 31, 2024
https://www.cnn.com/2024/01/31/economy/data-revisions-fed-rate-changes/index.html
Federal Reserve officials have said countless times they take a “data-dependent approach” to their policy decisions, including their current conundrum of when to slash interest rates. But what if the data isn’t as dependable as it once was?
That’s what appears to be happening — and it’s making central bankers’ jobs a lot harder.
“We have to make decisions in real time,” Fed Governor Christopher Waller said late last year. “Whatever data is released, that’s the data I have to use. The problem with data is it gets revised.”
That wouldn’t necessarily be so much of an issue if the revisions, which can come months after initial reports are released, were relatively small. However, many revisions over the past few years have been game-changers.
My take from September 7, 2023:
‘Overly data-dependent’ — how the Fed and the markets keep getting it wrong
https://thehill.com/opinion/finance/4189467-overly-data-dependent-how-the-fed-and-the-markets-keep-getting-it-wrong/
Central bankers and markets should be aware of the risks associated with an overly data-dependent approach to monetary policymaking. In 2019, Powell himself highlighted the basic challenge: “We must sort out in real time, as best we can, what the profound changes underway in the economy mean for issues such as the functioning of labor markets, the pace of productivity growth, and the forces driving inflation.”
Yet economic data are often unreliable. Official statistics undergo multiple and often substantial revisions. For instance, consider the widely watched non-farm payroll numbers. Initial estimates of monthly job gains/losses are widely reported by the media, and financial markets and the Fed often react sharply to this major data point.
Less widely-appreciated is that the payroll numbers undergo subsequent revisions —sometimes large ones that give the lie to the initial perceptions. Annual benchmark revision of 2022 data, for instance, indicated more robust employment figures than previously reported. In contrast, this year’s early rounds of revisions have consistently been downward.
GDP data also undergo multiple revisions, which makes it hard to quickly ascertain overall macroeconomic conditions. For instance, the Bureau of Economic Analysis will soon release an annual comprehensive update of national accounts, revising GDP data going all the way back to 2013. Furthermore, when estimates of aggregate economic activity provided by GDP and GDI diverge sharply, it introduces an additional layer of uncertainty.
https://www.cnn.com/2024/01/31/economy/data-revisions-fed-rate-changes/index.html
Federal Reserve officials have said countless times they take a “data-dependent approach” to their policy decisions, including their current conundrum of when to slash interest rates. But what if the data isn’t as dependable as it once was?
That’s what appears to be happening — and it’s making central bankers’ jobs a lot harder.
“We have to make decisions in real time,” Fed Governor Christopher Waller said late last year. “Whatever data is released, that’s the data I have to use. The problem with data is it gets revised.”
That wouldn’t necessarily be so much of an issue if the revisions, which can come months after initial reports are released, were relatively small. However, many revisions over the past few years have been game-changers.
My take from September 7, 2023:
‘Overly data-dependent’ — how the Fed and the markets keep getting it wrong
https://thehill.com/opinion/finance/4189467-overly-data-dependent-how-the-fed-and-the-markets-keep-getting-it-wrong/
Central bankers and markets should be aware of the risks associated with an overly data-dependent approach to monetary policymaking. In 2019, Powell himself highlighted the basic challenge: “We must sort out in real time, as best we can, what the profound changes underway in the economy mean for issues such as the functioning of labor markets, the pace of productivity growth, and the forces driving inflation.”
Yet economic data are often unreliable. Official statistics undergo multiple and often substantial revisions. For instance, consider the widely watched non-farm payroll numbers. Initial estimates of monthly job gains/losses are widely reported by the media, and financial markets and the Fed often react sharply to this major data point.
Less widely-appreciated is that the payroll numbers undergo subsequent revisions —sometimes large ones that give the lie to the initial perceptions. Annual benchmark revision of 2022 data, for instance, indicated more robust employment figures than previously reported. In contrast, this year’s early rounds of revisions have consistently been downward.
GDP data also undergo multiple revisions, which makes it hard to quickly ascertain overall macroeconomic conditions. For instance, the Bureau of Economic Analysis will soon release an annual comprehensive update of national accounts, revising GDP data going all the way back to 2013. Furthermore, when estimates of aggregate economic activity provided by GDP and GDI diverge sharply, it introduces an additional layer of uncertainty.
From the BLS:
