The Potential for Forecasting Errors Has Never Been Greater

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"Neither bull nor bear"

A deflationary hurricane is churning off the coast. At the same time, a massive warm front is surging toward us, threatening inflation like we have not seen in 40 years. As if forecasting future economic conditions was not tricky enough, both systems are being fueled in unpredictable ways by the convergence of historical amounts of monetary and fiscal stimulus.

The two ominous and encroaching weather systems make economic and market forecasting extremely difficult. The most recent evidence came from last week's BLS employment report. The consensus of economic forecasters missed the mark by 734,000 jobs. That is over three times the average monthly job growth pre-pandemic.

Forecasters must also untangle global supply line problems and resulting shortages of many commodities and finished goods. Further, robust pent-up demand from the lifting of economic restrictions and a global pandemic significantly influences the economic climate.

Despite such extraordinary circumstances, the level of confidence in economic and market forecasts is remarkably high. Many "experts" forecast beautiful days with a temporary bout of above-average inflation. There is nary a mention of debilitating inflation and no recognition of the troubling deflationary hurricane off at sea.