You wouldn’t believe a meteorologist who claimed to know the exact weather conditions 90 days from now, would you? Armed with models, data, and simulations, they would struggle to offer anything more than a likely range of outcomes, and since we live in a time of “extreme weather,” outlier events would be anticipated.
Can’t the same be said about economic forecasts?
Extreme weather has hit the U.S. economy as we find ourselves enduring a historic period of acute monetary policy and historic geopolitical change. These factors further complicate the already difficult task of forecasting the economy. Yet we seem quick to believe the projections put forth by Fed Chairman Jerome Powell and others regarding future U.S. economic conditions.
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While the common bias is to believe the forecasts, history tells a different story, and when you hear anyone, including Jerome Powell, talk about the economy having a “soft landing,” remember, no one knows what will happen!
Why the Fed can’t predict a soft landing
The United States is wrapping up a decades-long jamboree of fiscal and monetary mismanagement. This includes the historic monetary policy actions taken in 2020 by the Federal Reserve, which created distortions and imbalances in the U.S. economy on an epic scale. Money printing, stimulus checks, inflation, and increased national debt have resulted in an economy that is both fragile and synthetic.
Politicians in Washington want to keep the party going as they continue to run record deficits, further adding to the nearly $32 trillion national debt. The U.S. economy has been “highly medicated,” and this makes the management and navigation of the economy much more difficult for the Fed.
At the same time, the Fed is tasked with managing the economy within a sphere of geopolitical turmoil. Not since WWII have we experienced the current level of disagreement and strife amongst the world powers. U.S. dollar hegemony is being challenged by countries like China, Russia, India, and Saudi Arabia. Longstanding trade relations are breaking down, and the world is splitting into two.
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Can you see the Fed has quite an arduous task ahead of them?
Given the increasingly complex geopolitical and financial conditions gripping the world, economic forecasting by the Fed (or anyone else) has become an act of folly. The Fed finds itself driving through a nasty storm as it tries to navigate the delicate U.S. economy to a safe port. The economy is influenced by a complex web of factors, and the Fed’s predictions are always subject to revision. The Fed has no clue as to weather (pardon the pun) or not the U.S. economy will experience a soft landing.
Leave a comment below letting us know what you think. Will the U.S. economy have a “soft landing” or will the Fed be wrong again? Your forecast is likely to be as accurate as Powell’s!
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