Why Were Forecasts Off?

It is notoriously difficult to predict where the economy is headed. Even in that context, I don’t think it is controversial to say that the last few years have proven particularly challenging for forecasts. The U.S. economy, particularly its consumer, has been much more resilient to rate increases than most expected. Most anticipated we would be cutting rates by now, but that has not yet been the case. I do believe there are still lags playing out — and that all this tightening will eventually slow the economy further. I’m open to the idea that r-star has shifted up somewhat. It is too soon to tell, but there’s one way to find out: proceed deliberately while keeping a close eye on the real economy. That’s what I am doing.