A 6% Fed Funds Rate? That May Be the Mother of All Shocks
- Deutsche Bank forecast raises questions on market predictions
- Treasury markets aren’t priced for such a steep Fed funds rate
Jerome Powell, chairman of the U.S. Federal Reserve.
Photographer: Valerie Plesch/BloombergPrediction, especially about the future, is difficult, quipped the physicist Niels Bohr. When he made that tongue-in-cheek remark, he certainly didn’t have the markets in mind, but he might have as well talked about recent economic forecasts.
And perhaps nowhere in recent memory has the consensus been so wrong: few expected the global economy to rebound as strongly as it did after the pandemic. And for a long time, even the Federal Reserve’s own forecasters were parroting the transitory refrain before it turned too shrill to be proven otherwise. Around March 2021, the European Central Bank’s forecast of inflation one year ahead was a measly 1.3%. Pinch yourself if you must, the actual number turned out to be 7.4%. So much for gazing into the crystal ball and divining a number.