Consensus Forecast for 2025 & Recognition of 2024 Forecast Winners

THOMAS WALSTRUM: All right, so we're going to get started. We're resuming the-- we're going back to kind of the more traditional version of the Outlook Symposium going forward. We're going to have a series of speakers that are going to talk about things that I and my colleagues have decided are important things to talk about.

And we're going to start with me, the least important, I would say, of all these things, except, actually, I'm going to be talking about what you all had to say. Yeah, but first, so we're going to go-- so as I think everyone should know because you registered, we have a forecast competition. I think this was probably going back to the very first symposium when it was a group of people who like to make economic forecasts getting together and talking about the upcoming year. And so we've long had a competition where people submit their forecasts for the coming year, and then we see who wins.

And so this year, we switched it up a bit. We've been getting, say, 15 to 20 responses to-- we would send out this spreadsheet that was a really complex spreadsheet. And Elizabeth over there, who used to have to process the results, is really grateful that that stage of the competition is over.

But it was one of these spreadsheets where you had to put in, say, what you thought the 2017 dollar value of GDP was going to be in the first quarter of the coming year. And I'm really glad that we actually had 15 to 20 people who were willing and able to do this, and we'd get actually pretty good results.

But more recently, we decided, OK, let's actually try to-- we'll simplify the forecast competition a bit. We're going to ask for just four things and make it a lot easier for people who maybe don't have their own economic forecast model running all the time to make a forecast. And so that's what we're going to do. But first, I have to award the winners from last year.

So last year, the job was to forecast what was going to happen in 2024. And we've got certificates for the winners. So if you see your name on this table, you can come up and get a certificate. And I'm just going to highlight our overall winner, who is Billy Chesbrough. I don't know if Billy's in the audience this year or not. I don't see him coming up, so I can't shake your hand. I'm not going to actually ask everyone to come up who's on this list. We don't have time for that. However, you can come to me at lunchtime, and I'll give you your certificate if your name is up here.

But Billy won because-- the overall winner did the best on GDP, inflation, and unemployment, and Billy won. It was actually the same as the previous winner for the year before. He won because he was the most optimistic on GDP. He nailed GDP, and he was the one with the highest real GDP growth rate for the year. So interesting there. If the goal is to win the forecast, it's kind of like a Price is Right kind of approach you might need to take where you're trying to guess maybe the highest or the lowest but not be really crazy about it. So congrats to Billy.

And it's going to be more interesting next year because I think we had 330 people registered for this, and we got 200 submissions. And so the idea this year is that we're soliciting the wisdom of the crowd. So I went on Wikipedia, and I'd heard this term before and googled it and found a nice article on Wikipedia. It turns out that there was a 1907 journal in the journal of Nature by this man, Sir Francis Galton. And what he did is he went to a county fair in Plymouth, England, in 19-- I think it was 1906. And he held a competition where the goal was to guess the weight of a slaughtered and dressed ox. Maybe they have these competitions still today. I'm not sure.

Actually, I had to look. I'm so disconnected from the real economy, I had to look up what a slaughtered and dressed ox was. I know what slaughtered was, but I wasn't sure about dressed.

Anyway, so what happened is-- I don't know how many people were at this fair. I'm guessing it was-- maybe it was 200, and everyone was asked to guess what the weight was. And then Sir Francis went and tabulated what the median response was. The median guess was 1,207 pounds, and the actual weight was 1,198 pounds, so a very, very close guess. I think the modern-day test is asking people to guess the number of M&Ms in the jar, something like that.

So it turns out that you can-- it flabbergasts me, actually, to think about how good it seems like we are in these types of circumstances where you ask a bunch of people. Many people are going to be way off, but if you look at the middle, you actually end up getting pretty close. So that's, more or less, what I was asking you all to do when you were registering for this event was to contribute to the wisdom of the crowd by maybe you don't think about the unemployment rate very much, but if we all think about it together, we might actually get pretty close.

So what I've done is I've gone and I've compared what everyone here said to the Blue Chip consensus forecast. So the Blue Chip forecast is something that you can pay a lot of money for. And, actually, we've had people who contribute to this participate in our survey competition or our forecast competition before, but it's a collection of- I think it's 30 to 40 or so professional forecasters. They submit their forecasts, and then the consensus is the median forecast for a whole bunch of economic indicators. And then you can go pay Wolters Kluwer a bunch of money to get access to this forecast.

It turns out that we pay for that here at the Fed, so we get to look at it. And I'm going to show how the group's forecast compares to the Blue Chip forecast for the four indicators we asked you for.

All right, so let's start with GDP growth. So we asked about real GDP growth. I asked about from the second quarter of this year to the second quarter of next year. And so the blue line here is what has happened. The red dots are the Blue Chip. They were asked to do every quarter. I only asked for one thing. But the red dots are what Blue Chip said, and the green dot is our consensus forecast. That's the median response.

Now, this is a four-quarter percent change. So every tick on this chart is how much GDP grew over the last four quarters. So it's like a yearly growth rate at every tick.

So our forecast-- and I shouldn't say our. I actually didn't submit a forecast. But the group's forecast is 2.7% real GDP growth over the next-- or from the second quarter of this year to the second quarter of next year. When you submitted, we only had data through the second quarter of the year, so that's why I asked that. Blue Chip is more pessimistic. The Blue Chip forecast is for 2.1%.

Both of these forecasts are above what the FOMC median participant thinks the long-run growth rate of GDP is. That's 1.8%. So if you think that the economy is kind of heading towards the-- in the absence of any shocks like a pandemic or oil price shoots up or something like that because of some problem in the global economy, in the absence of any kinds of shocks, you'd expect the GDP growth to eventually get to 1.8%. So both of these forecasts are for above-trend growth for the coming year. That's how I would interpret this.

They're also both forecasts for slowing growth compared with prior years. So 2023 was a really strong year, and 2024 also is expected to turn-- we don't know what's happened, obviously, in the fourth quarter yet, but I think the expectation is probably similar to this first red dot, that it's going to be somewhere a little bit above 2%. But then for the coming year, the expectation, both from you all and from Blue Chip, is for growth to slow a little bit but not a ton. Definitely not a recession.

OK, next indicator. Oh, and the last thing I didn't say is you can see the green-- I should know what to call this-line with hats on it. We'll call it that. That's the range where that bottom line is what the 10th-percentile respondent in our group said, and the top one is what the 90th-percentile said. So that shows you kind of the range of ideas of what people think might happen.

OK, let's look at unemployment now. So this is-- I think soft landing is perhaps-- I think it's passé now. Actually, I heard someone say that almost-- I think it was someone say that the soft landing has been achieved. I'm not sure if I would agree with that. I think we still have inflation above target, and we are not yet at trend growth. So maybe we're not at a soft landing, but I would say that-- but I think we're-- I would call this on track for a forecast on track for a soft landing where inflation, I'll show you in a second, is still a little bit high, but it's headed down. And as Austan said, it's inflation coming down without us having to go in recession. So this is definitely not a recession forecast here.

And I'll say notice the green dot in this case is right on top of the red dot. There is no daylight here. So our group is exactly saying exactly the same thing as what the professionals are saying, acknowledging, I think, that we might have some professionals in the audience.

So anyway, it's an unemployment rate slightly above what the FOMC median participant thinks is, again, this long-run unemployment rate that we'd arrive at in the absence of further shocks to the macro economy. So unemployment rate to be maybe a little bit high, but a tenth of a percent really not that different from the long run. And really if inflation continues to come down, really approaching this soft landing or what I'm going to call a soft landing.

OK, next indicator. This is we asked you about inflation as well, and we asked you about the personal consumption expenditures Index. That's the one that the Fed pays attention to. That's why I asked you about it. That's the one we use to say if this index arrives at 2%, then we've achieved at least one part of our dual mandate.

So you can see-- again, you can see very clearly how high inflation was in '22 and '23 and how much it's come down. And like the Blue Chip, our group thinks that inflation is going to come down some but still be above the 2% target over the next year.

And again, I think one further thought about why we might not get there by a year from now is it seems like there's still enough momentum in the economy to keep demand a little bit stronger than trend. If you look at-I'm not going to show you this forecast, but if you look at where the FOMC and other folks think the short-run interest rate is headed, they think it's probably not going to get down to its terminal place where we're neither stimulating nor slowing the economy until sometime in 2026. So this is another year where we're getting close to target but maybe not there yet but also not in recession.

All right, final indicator that I asked you for is not the Fed's rate but a long-term rate, the yield on the 10-year Treasury note. So this is a baseline interest rate that matters for a lot of the other interest rates in the economy. And here again we have the EOS group saying something quite similar to the Blue Chip. The green dot is actually slightly below the red dot, but if you round it to the tenths, it's the same.

And so room for the long-run rate to come down a little bit, perhaps because some of the short-run rates that are really high right now are coming off, but still above what Blue Chip thinks is the longer-run 10-year Treasury note rate in the economy, or at least the median Blue Chip participant thinks it's headed down towards about 3.25% eventually, sometime in '26 or '27. So short-run rates probably coming down more than the long-run rate here, and I'm not going to show you the short-run rate because we didn't ask about that.

So that's all I've got, and I'm happy to say that I wasn't sure how we were going to do with time, but I'm happy to be done here, basically, except for-- and give some more time to our distinguished speakers coming after me. But first I have to do my obligatory advertisement, which is I've already actually met some folks today who aren't yet contacts. Now, a big part of this group are people who regularly share information with us about what they're seeing in the economy, but not everyone is. So I want to make sure that everyone who's here at least has the opportunity to develop a longer-term relationship with us if you are running an organization that does operations in our the Seventh Federal Reserve District.

So the Seventh Federal Reserve District covers Illinois, Indiana, Iowa, Michigan, and Wisconsin. And so if you have an organization that's doing operations there and you can tell us about its performance, you can help us keep track of the current state of the economy.

So you heard today and I've already said that Austan uses the information that we gather as an input for helping him understand what the current state of the economy is. So the way that you can help us is you can fill out this monthly survey, that if you follow the QR code, you can share your information with us to get signed up for the survey. The monthly survey takes about 10 minutes. It's called the Chicago Fed Survey of Economic Conditions.

And through that, you can share with us what you know and help us understand the economy a little bit better.

And so as I said, we share these results with the president, and they also go into the Beige Book, which is our kind of external publication that summarizes all the things we're hearing from our contacts. And we do keep your identity confidential internally, and we just only share aggregate information, which allows you to hopefully be as honest as possible. So please do join us.

And the other thing that in filling out this survey, if you can, if you're a good fit, the other thing is that this is an end of the year update that we give that's a lot of fun and involves being in person for a lot of us. But we also do give regular updates to survey participants throughout the year on what we're seeing in the economy, and that's me in Webex talking to you over a screen.

So thanks, everyone, for being here, and thanks for filling out this. It's going to be exciting, the forecast results from next year, because many of you gave the same answers, so I might have to print out a whole bunch of sheets.

But yeah, so thanks for, everyone, participating. And now I'm going to give back some of my time to the next folks who I think are going to have a lot of really important and interesting things for us to say, and we're going to start with Buckley.