Let's take a more long-term view of the US economy. After large gains during the lockdown year, equity markets have entered bear territory, with technology stocks taking a huge hit. But now, almost 90% of Blue Chip analysts expect that real (inflation-adjusted) GDP growth in 2023 will be 1% or less, and about 40% of that cohort puts it at zero or negative. Given these forecasting misfires, few in mid-2021 predicted a recession within the next few years. In mid-2021, the three-month US Treasury bill yielded just 0.1%. Then, when inflation did begin to surge, many insisted that it would be “transitory.” The Fed’s historically rapid tightening of monetary policy – repeatedly raising its policy rate by 75 basis points, before tempering its hikes with a 50-bps increase this month – was hardly on Fed watchers’ radar screens. Similarly, the US Federal Reserve’s preferred measure – the core personal consumption expenditures index – was expected to rise by just 2.7% it is up 5%. Yet over the last 12 months, “core” CPI, which excludes volatile food and energy prices, has risen by 6%. The “Blue Chip” consensus – reflecting the views of 50 private-sector forecasters – was that the US consumer price index would rise by just 2.5% in 2022. Recall the outlook from mid-2021, when very few observers were worried about inflation (I was among the small minority that was). STANFORD – The economic, financial, and political chaos of 2022 has exposed the limits of forecasting.
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