What Really Predicts the Fed?
A leading monetary tale...
Subscribers will be aware that we have a model that looks to predict the timing and direction of changes to central bank policy rates.
For example, see this:
Our approach is pretty straightforward:
Central banks target certain specific variables, generally inflation on the one hand and growth on the other.
We have monetary leading indicators for most economies for each of these variables.
We have created combined growth/inflation variables to simulate central bank policy targets.
We combine our monetary leading indicators for the components into a leading indicator for the combined variable.
We run this indicator and look ahead for turning points.
Our model for the Reserve Bank of Australia’s policy rate called the most recent tightenings:
Similarly, our ECB policy rate model called the ECB’s recent tightening:
SOON WE ARE RELEASING OUR JULY MODEL UPDATES, INCLUDING OUR EXPECTED TIMING AND DIRECTION FOR THE FED FUNDS RATE.
EXCLUSIVE TO PREMIUM SUBSCRIBERS.
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The RBA and ECB calls are good context, but they're not the test. The real test is the Fed call sitting behind the paywall, the one made in real time instead of in hindsight.
A model earns trust on the calls nobody has seen the outcome of yet, not the ones it can already show working.