President Donald Trump has said he will nominate Steve Moore and Herman Cain to be members of the Board of Governors of the Federal Reserve. Both have been criticized as being unqualified for not having Ph.D.s in economics.
The truth of the matter is that former Chairman Paul Volcker also did not have a Ph.D., and neither did William McChesney Martin nor Marriner Eccles.
The latter two chairmen of the board are ones for whom the Fed's two big buildings in Washington are named.
But even a board packed with Ph.D. economists does not guarantee a good record when it comes to economic forecasting. Such a board definitely did not see the Great Recession happening. At its meeting at the end of October 2007, the members forecast growth of 1.8% to 2.5% in 2008 and 2.5% in both 2009 and 2010. They also projected that the unemployment rate would never rise above 5% through 2010.
In fact, according to the National Bureau of Economic Research, the recession began that December and lasted through June 2009. Economic growth was a negative 2.8% in 2008 and just 0.2% in 2009. The unemployment rate climbed to 10%. The Fed's forecast ability wasn't any better during the recovery. At the end of 2010, its projection was for 3.3% growth in 2011 accelerating to 4% in both 2012 and 2013.
It was too high for 2011 by 1.7 points and too high for the next two years by an average of 2 percentage points. At the end of 2012, it forecast 2.7% growth for 2013 followed by an acceleration to 3.25% and then 3.4%. it came close for 2013 but missed the next two years by an average of a full point. At the end of 2013, it forecast an average of 3% growth over the next three years, we got 2.3%.
Then, for the Trump presidency the errors went in the opposite direction. In December 2016, the Fed projected 2.1% growth for 2017 and we got 2.5%. In December 2017, it projected 2.5% growth for 2018 and we got 3.1%. (GDP figures measure from fourth quarter of the previous year to the fourth quarter of the following year.)