The Lesson of the Federal Reserve Being “Wildly Wrong”

September 11, 2023

“Forecasters usually tell us more about the forecaster than of the future.”

That’s how one investor put it.

One of the more recent illustrations of this and a common mantra I like to use—no one knows anything—is the Federal Reserve’s recent predictions.

As you’ve probably noticed, interest rates have been hiked quite a bit over the last few years by the Federal Reserve. Some of this was in response to inflation—the debate over whether it was transitory or not—and things like government spending and COVID lockdowns.

What’s curious about this is how badly the ones who you think should know something about the economy (at least over the short-term) get it wrong.

Ironically, the ones making the decisions on raising rates are the very ones whose predictions were so bad in the first place.

Historian Niall Ferguson, in a recent interview with podcaster Chris Williamson, recounts this: 

You look back and you realize, even now the best paid economists in the world here in New York and Wall Street, the people with the most kudos at the International Monetary Fund, they do a terribly bad job even of predicting what growth and inflation will be twelve months from now. The Federal Reserve employs some really smart people. They have PHDs. It’s really hard to get a job there…they were so crazily wrong about where interest rates would be right now two years ago. They were like 500 basis points off. They were wildly, wildly wrong and that was just over a 2-year time horizon. So, we would love history to be predictable so that we just apply our model and say, “Oh, here’s the fiscal policy. Here’s the monetary policy. This will be the inflation rate. This will be interest rate.” We keep trying to do that.1

We keep trying to do that.

And often fail.

This echoes across the landscape of human history.

Don’t get too cocky though. It’s always easy to blame others.

This isn’t simply institutional failure.

This is human nature.

The takeaway is: be wary of predictions, even your own.



  1. The Shocking Lessons Of History Everyone Has Forgotten - Niall Ferguson | Modern Wisdom 675. Excerpt near the 15-minute mark.