Cover of MoneyWeek magazine issue no 499

Picking winners

13 August 2010 / Issue 499

The best ways to profit from Germany

PLUS:

  • How to play extreme weather
  • 'Big Mac' burgernomics says sell the euro
  • The pop producer running for President

Excerpt

Don’t bank on forecasts

Times are getting harder for us at MoneyWeek: so many people seem to be coming round to our way of thinking (double-dip, etc) that we can barely consider ourselves contrarian anymore.

On Tuesday the US Federal Reserve downgraded its expectations for US growth, made moves to ease monetary policy again and appeared to become a firm member of the deflationary camp. Apparently, “the pace of economic recovery is likely to be more modest in the near term than anticipated” and “inflation is likely to be subdued for some time”.

Much the same happened here on Wednesday when our own inflation report emerged from the Bank of England. Growth forecasts were cut; we were told that, “it will take many years before bank balance sheets and fiscal positions return to anything like normal”; and Mervyn King also made it clear that he thinks it is only the odd exceptional factor, such as VAT rises, that will keep inflation rates high.

But how much should we really care about the forecasts of our central bankers? They were hopeless at forecasting the banking crisis and its consequent recession, and they’ve been just as useless at predicting its path.

But there’s every chance this particular bout of terrible forecasting has been, at least in part, intentional.

• Read the full editor’s letter here:
Don’t bank on forecasts