Using historical comparisons from 1999 to 2015, inflation nowcasts from the Cleveland Fed’s model have been highly accurate. Our model’s nowcasts easily outperform a variety of nowcasts from alternative statistical models, especially over the course of a month or quarter. But perhaps even more notable is the model’s performance compared with the best available benchmarks: nowcasts from surveys of professional forecasters. The model’s nowcasts for CPI inflation tend to be more accurate than the consensus (average) nowcasts from the Blue Chip Economic Indicators survey. Its nowcasts for CPI and PCE inflation also tend to be more accurate than the median nowcasts from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters (SPF). These results are somewhat surprising, because professional forecasters can and do use a range of models and judgment to capture the special factors that affect near-term inflation trends, and there is additionally evidence of the wisdom of the masses (or, more formally, the law of large numbers) when making forecasts. Meanwhile, the model’s nowcasts for core inflation tend to be just as accurate as those in the SPF, but the model is available at a daily frequency, while the SPF is released only once per quarter.
Finally, we also compare the model’s inflation nowcasting accuracy with publicly available nowcasts from the Greenbook (the in-depth analysis of economic conditions produced by the Federal Reserve Board of Governors staff for Federal Open Market Committee meetings). While Greenbook nowcasts tend to be highly accurate, they are only released to the public with a five-year lag. The Cleveland Fed’s model nowcasts have historically tended to be quite similar to those in the Greenbook, but they are available in real time, without delay.