When to be humble about inflation forecasts

Source: Christian Science Monitor
by staff

“One thing is certain about America’s debate over whether harmful inflation is on the horizon in a hot economy: The agency in charge of managing inflation, the Federal Reserve, is very uncertain about what to do. And that may actually be a virtue. In March, 11 of the top 18 officials in the U.S. central bank were predicting low inflation and thus saw no need to raise interest rates before 2024. By June that flipped: Thirteen of 18 saw a need to raise rates before 2024. Not only is the Fed divided, but its leaders are also in deep deliberation …. They perhaps know that two recent unpredicted shocks (the 2008 global financial crisis and the 2020-21 pandemic) have made economists engage in reflective self-criticism and be less prone to hubristic predictions. In the ‘dismal’ profession of economics, a cautious bias has replaced a confidence bias.” (07/06/21)