Sunday, May 11, 2014
Torsten Slok once again makes a beautiful graph, of the kind I posted at the bottom of Punditonomics, reminding us of the foibles of forecasting. (I would have connected each projection to the actual value at the time it was made, but should make my own graphs if I want to criticize.)
Torsten views the result as an indication of failure for the Fed's models. I think the message is deeper, and tells us a lot more about the macroeconomic situation.
Every serious forecast looked like this -- Fed, yes, but also CBO, private forecasters, and the term structure of forward rates. Everyone has expected bounce-back growth and rise in interest rates to start next year, for the last 6 years. And every year it has not happened. Welcome to the slump. Every year, Sonny and Cher wake us up, and it's still cold, and it's still grey. But we keep expecting spring tomorrow.
Whether the corrosive effects of government microeconomic and regulatory policy, or a failure of those (unprintable adjectives) Republicans to just vote enough wasted-spending Keynesian stimulus, or a failure of the Fed to buy another $3 trillion of bonds, the question of the day really should be why we have this slump -- which, let us be honest, no serious forecaster expected.
(I add the "serious forecaster" qualification on purpose. I don't want to hear randomly mined quotes from bloviating prognosticators who got lucky once, and don't offer a methodology or a track record for their forecasts.)