World’s Worst Economic Forecasters

The 75bps hike on Wednesday was priced into the market. However, the Fed's "Dot Plot," showing no "pivot" in policy anytime soon, sent markets lower. There was a 10-9 majority in favor of hiking above 4.25% this year, suggesting a fourth 75 basis-point increase in November is possible. (Chart courtesy of Zerohege)

As noted by Zerohedge:

"Remember, until Powell's Jackson Hole speech, the Fed discussed a soft landing scenario with the economic projections at the June meeting reflecting that thinking."

Furthermore, the market was also pricing a "pivot" in monetary policy by May of 2023. The problem is that the Fed's new economic projections dashed those hopes, with growth estimates slashed and inflation elevated.

• The Fed substantially revised GDP forecasts lower, with the median estimate for growth this year at just 0.2%.
• Unemployment rate forecasts are up, with the median now at 4.4% for both 2023 and 2024.
• The Fed doesn't see inflation returning to its 2% target until 2025.

The problem is that while these statements clearly show that "no pivot" in policy is coming, they are also likely very wrong.

As we have discussed, the Federal Reserve is the worst economic forecaster ever. We have been tracking the median point of their projections since 2007, and they have yet to be accurate. The table and chart show the Fed is always inherently overly optimistic in its forecasts.

The corner graph shows the sharp drop in economic growth expectations since the July meeting. If they were this wrong just a few months ago, how wrong will they be in 2023?

While the Fed is currently pushing a "no pivot" stance, there is good reason to expect a pivot in 2023.

Lance Roberts