Why Bernanke can't winJune 18, 2013: 10:30 AM ET
Economists are complaining that the Fed is too optimistic about the economy. It was just over a year ago that its outlook was too pessimistic.
FORTUNE -- When Federal Reserve officials meet today and tomorrow, Wall Street may not get the clarity it has been looking for.
Up until a few weeks ago, it was pretty clear what the central bank was up to, at least for the near future: To help the job market improve, the Fed would buy $85 billion a month in Treasury bonds and mortgage-backed securities until the economy improves substantially.
Last month, however, Federal Reserve Chairman Ben Bernanke said the central bank may slow down its bond buying program within just "a few meetings," even though unemployment still stands at 7.6%. This has confused investors; since May, yields on 10-year Treasuries jumped by about half a percentage point. More than that, any pullback would signal that the economy may be doing better than most of us think.
That may or may not be true, but some are now calling out the Fed for giving the economy a far too rosy outlook. And President Obama hinted on Monday that he may not reappoint Bernanke for a third term.
In every year of the economic recovery, the Fed has overestimated how fast the economy would grow, as The Wall Street Journal noted Monday. Its monthly survey of private-sector economists shows that forecasters on average expect the economy to grow 2.3% this year and 2.8% next year -- lower than the Fed's latest growth projections, made in March, which average growth closer to 2.6% for 2013 and 3.2% for 2014.
Officials might be too bullish again, but the Fed hasn't always been more optimistic. It depends who you ask and whether they're worried more about unemployment or inflation.
Recall last year when a spate of better-than-expected economic data failed to convince the Fed from turning off the money spigot. In February 2012, after the unemployment rate fell to a three-year low of 8.3%, Bernanke defended the central bank's decision to hold interest rates at record-low levels for the next three years.
True, he acknowledged the economy was doing better, but he also said it was "sluggish"at best as he worried about the implications of debt problems in the U.S. and Europe. Bernanke defended the Fed's prescription against Republicans who are worried its purchases could encourage prices to rise rapidly in the years ahead.
It may be too early to say who is right, but so far inflation doesn't appear to be a problem.
At its meeting this week, Fed policymakers probably won't slow their monthly asset purchases until at least December, according to two-thirds of 39 economists and investment strategists surveyed by CNNMoney. Some noted that the so-called "tapering" may not begin until 2014.
That may or may not keep interest rates from rising further, but it may at least say a lot more about the health of the economy.