“Prediction is very difficult, especially if it’s about the future.” – Niels Bohr
The quote by the Nobel Laureate went through my mind as I read about the various economic forecasts by Fed governors and Regional Bank Presidents over the years. A couple Wall Street Journal reporters tabulated 700 predictions between 2009 and 2012, scoring them on how accurate they’ve been.
The officials most cautious on the economic outlook were the most accurate. But what’s interesting isn’t so much who was right, but what people do when their predictions are proven wrong. Some, like James Bullard, question their economic models. But it takes real integrity to question your very premises—like Minneapolis Fed President Kocherlakota, who said, “You have to learn from the data.” It’s more typical that people question the data, or the timing, or whether an accurate forecast was even possible–anything but their foundational assumptions.
Economic forecasts are important because they imply policies and investments that can help us all meet our goals. The future isn’t a random walk. If we want to do better, we need to learn from our mistakes.
Douglas R. Tengdin, CFA
Chief Investment Officer