Miran’s First Challenge at the Fed? The Summary of Economic Projections.

Stephen Miran. (Win McNamee/Getty Images)

Stephen Miran, one of President Donald Trump’s top economic advisors, was sworn in as a Federal Reserve governor on Tuesday morning, just as officials began their September policy meeting. His confirmation, pushed through the Senate on Monday evening, set a record for how quickly a new governor moved from approval to the policymaking table.

Markets expect the Fed’s policymaking arm to trim rates by a quarter point. Miran, who has pledged to take unpaid leave from his post at the Council of Economic Advisers while serving at the Fed, may argue for something larger, reflecting both his currently dovish stance and the White House’s push for deeper cuts. But his first challenge is less about the size of a rate cut and more about whether he can contribute to the Fed’s Summary of Economic Projections, or SEP.

Why it matters

The bundle of tables and charts that make up the SEP has become one of the most-closely watched releases in central banking. Four times a year, Fed governors and regional bank presidents submit their forecasts for economic growth, unemployment, inflation, and interest rates. The anonymized results, released after the March, June, September, and December Federal Open Market Committee meetings, give investors a sense of how policymakers see the path ahead.

The “dot plot,” which shows where each official expects interest rates to be in the future, usually draws the most attention. But the broader set of projections on growth, jobs, and prices help anchor long-term expectations and signal how the Fed thinks about the economy beyond its immediate decision.

Though the SEP aggregates individual submissions, it isn’t a consensus forecast. As former Fed economist Claudia Sahm has written, “The medians in the SEP aren’t the Fed forecast and never will be.” Still, it remains the closest thing to a road map of policymakers’ views.

How the process works

Projections are due the Friday before each March, June, September, and December meeting, but participants can update their numbers until the morning of the second day of the meeting. Once the figures are completed, staff compile them for release alongside the FOMC’s policy statement and ahead of the Fed chair’s press conference.

Each submission goes beyond numbers. Officials also provide written explanations of their forecasts and preferred policy paths—but those additional documents stay confidential for six years, long after the market has moved on.

The mechanics of the SEP are precise. Growth and inflation projections are measured from the fourth quarter of one year to the fourth quarter of the next. Unemployment forecasts reflect the average jobless rate in the fourth quarter. In March and June, officials provide projections for the current year, the following two years, and the longer run. In September and December, the horizon extends to three years, plus the longer run.

A shift toward transparency

Since 1979, the Federal Reserve has published a summary of individual economic projections from various Board members, FOMC members, or FOMC participants in the semiannual Monetary Policy Report to the Congress. But the SEP in its modern form dates back to former Fed chair Ben Bernanke.

In a 2007 speech, the then-chair said that the era of “never explain, never excuse” was over, and introduced quarterly projections as part of a push for greater transparency.

“Most importantly, monetary policy makers are public servants whose decisions affect the life of every citizen; consequently, in a democratic society, they have a responsibility to give the people and their elected representatives a full and compelling rationale for the decisions they make,” he said at the time. “Good communications are a prerequisite if central banks are to maintain the democratic legitimacy and independence that are essential to sound monetary policy making.”

The Fed later expanded the exercise, adding longer-run forecasts for growth, unemployment, and inflation in 2009, before adding the dot plot of interest-rate expectations in 2012.

Under Fed chair Janet Yellen, the central bank refined the process by introducing median projections to make the central tendency clearer. Under current chair Jerome Powell, the Fed has launched another review of its communications with some, including Bernanke, arguing for more narrative context around projections—and others pushing to eliminate the dot plot altogether.

What makes it challenging

Preparing an SEP is a complex economic task, especially with the current uncertainty around federal policy concerning tariffs and immigration.

Most governors and presidents rely on teams of staff economists to help assemble the data and analysis. Miran, arriving without staff support, may not yet have that infrastructure.

“The submissions are at the same level of FOMC security as draft statements, so they must be tightly held. He cannot ask an outsider to complete it, but he can listen to the views of anyone he wants,” said Vincent Reinhart, chief economist at BNY Investments and a former senior Fed official. That means Miran will likely be unable to submit anything compiled with the help of his staff at the White House or elsewhere.

There is also a precedent for sitting it out. Lael Brainard, confirmed just one day before her first FOMC meeting in 2014, declined to give her outlook, according to official meeting transcripts.

“I want to compliment the staff on their analysis, which I found very informative. Unfortunately, I wasn’t able to have exposure to this very excellent analysis until yesterday [laughter], and in light of that, and of the very consequential nature of the questions on the table, I am going to reserve my comments until the next meeting,” she said.

Miran could make the same choice, though technically he has until Wednesday to complete his SEP numbers. “Miran has time,” said Reinhart.

The bigger picture

Whether Miran files or not, his first meeting highlights the central role of the SEP in the present-day Fed. For all its flaws, the tool has become indispensable for investors trying to gauge the economy’s direction.

The charts released at the end of the September meeting will look roughly the same as usual. What is less visible is the effort it takes to produce them and how much they reveal—and conceal—about the thinking inside the central bank.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.