CURVE FITTING
Curve fitting is a term that we use that describes concocting an answer that seems like a reasonable explanation for an evolving situation. Given the interconnectedness of financial markets and asset values, we think that curve fitting provides an educated guess into the cause and effect of the financial markets. Curve fitting is also not limited to strategist as we have seen economist look beyond the sanctity of long-term economic series in explaining data anomalies. What comes to mind was the expanded set of employment measures that Janet Yellen introduced near the start of her Chairmanship in order to justify continuing loose monetary policies while the unemployment rate fell to levels that had previously been considered inflationary. The debate about the correct way to measure inflation has likely existed since the CPI index was first established. More recently, the series of weak first quarter GDP data over the past few years has sparked debate over whether the seasonal adjustment used by the BEA accurately captures economic activity. In a paper recently published by the San Francisco Fed, that was discussed during the last FOMC meeting and mentioned by various Fed speakers, it was argued that actual 1Q:15 growth was better than what was reported.
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