The FOMC's New Individual Economic Projections and Macroeconomic Theories

This paper examines whether the economic projections made by individual policymakers of the Federal Open Market Committee (FOMC) are consistent with macroeconomic facts and theories. By analyzing the projections between 2007 and 2016, this paper finds that they are consistent with Okun's law, revealing a significantly negative relationship between unemployment and output growth projections. The relationship between inflation and unemployment projections associated with the Phillips curve is much weaker and more dispersed. The FOMC's reaction function is estimated to be consistent with a conventional Taylor rule, with a sufficiently aggressive response to the inflation gap satisfying the Taylor principle and a negative response to the unemployment gap