The Fed Nailed 2016, If You Ignore Their Rate Outlook

The Federal Reserve was right about forecasts this year except the one that arguably matters most: short-term interest rates.

Economists and market participants alike expect the Federal Reserve to raise rates for the first and only time in 2016 on Wednesday, meaning that they'll eke out just one of the four increases they expected at this time last year. That fabulously wrong rate guess came in sharp contrast to the Fed's unemployment and inflation projections, which look mostly spot-on based on what we know so far.

The graphs below show how growth and prices performed versus what officials expected, taking the prior December's projection for each year (in blue) and comparing it with the actual data. Note that the Fed's projections are for the fourth quarter, and we don't have all of the data yet, so we can only assess policy maker's 2016 track record approximately.

When it comes to joblessness, the Fed has been way off throughout the recovery: It has fallen much faster than expected. That changed this year. The Fed saw 4.7 percent unemployment on average in the final quarter of 2016, and so far it's averaged 4.8 percent. Once December data are in, it's possible they'll have gotten it exactly right.