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Stock Market News, April 12, 2024: Indexes Finish Week Lower as Bank Earnings Land
Muted JPMorgan outlook weighs on stocks
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April 12, 2024 at 6:10 PM EDT
Ben Bernanke, former chair of the Federal Reserve, stopped short of recommending the Bank of England adopt a "dot plot" system. (Al Drago/Bloomberg News)
Ben Bernanke has some thoughts on how to fix the Bank of England's much-maligned economic-forecasting models—and that includes paying less attention to the markets.
Concluding a monthslong review, the former Federal Reserve chair blasted the bank's "laborious and inefficient" forecasting, saying it relied on "seriously out of date" technology. Here are some of the dozen fixes that he recommended:
Deemphasize the markets. BOE projections depend on market estimates of where rates are headed. That lets the BOE avoid taking a stance on future policy—but creates a "tail wagging the dog" problem, as Deutsche Bank puts it. Bernanke said the bank could issue its own forecasts but didn't recommend it do something akin to the "dot plot" he introduced at the Fed.
Update the software. His biggest concern is aging technology, and the review describes how hard it is for BOE economists to make simple graphs and export data with current software.
Overhaul the model. The BOE's main economic forecasting model, Compass, should be replaced or thoroughly revamped. It doesn't include detailed data on key sectors like energy or financial sectors, and tends to predict the economy will rapidly return to normal.
Publish alternative scenarios, as some other central banks do. Those could project how the economy would handle fast or slow inflation, or different borrowing costs.
Be concise. BOE policy statements are comparatively long and make it harder for investors and the public to decipher what's important.