Analysts have a hard time adapting old models to new post-Covid economy
Robert Burgess
The consensus is that the Fed is so far behind that curve when it comes to hiking rates that it will to tighten monetary policy so severely that it forces the economy to contract to get inflation under control. The problem with such forecasts is that they read like a page out of the prepandemic playbook.
And it’s been clear that analysts have had a hard time adapting old models to the new order, rendering forecasts little more than guesses. Data compiled by Bloomberg show that until the middle of last year, economists were predicting that inflation would probably run at about 2.5% for 2022 despite the consumer price index topping 5% at the time. The CPI has since leapt to more than 8%.
That those special government programmes have ended does not mean the largesse has not continued. US taxpayer refunds are surging, rising to an average $3,175 this year, up 9.9% from 2021’s matching period, according to Bloomberg data. The payouts may be improving consumers’ mood. It’s not as if consumer finances are stretched. The household debt-service ratio has been near record lows since the start of the pandemic, holding comfortably below 10% and nowhere near the record 13.2% peak in 2007 heading into the past recession. Such low leverage has given consumers the confidence to take on more short-term debt. The Fed said earlier this month that consumer borrowing rose in February by the most on record, jumping $41.8bn from the previous month.
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