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Who likes the feeling of being uncertain?
Avoiding uncertainty is hard-wired into every single one of us.
People run from uncertainty, because that's what all of our ancestors did...
Anyone strutting around confidently ignoring that rustle in the bushes ended up eaten or murdered.
Those genes didn't get passed on.
The ones who ran away from that uncertainty survived and passed those instincts on to the next generation...
Sciency evolution types call it survival optimisation...
Nowadays, we don't face those same survival risks yet that tendency to avoid uncertainty persists.
Which makes it even stranger that people build careers out of forecasting a highly uncertain future...
Now, I've had a bit of a pop at inflation and economists this week so I thought we could use them to illustrate how that game works 👇
That's settled then: 2.8% is THE NUMBER, the threshold
Digging into the details, the massive range of responses within this survey led some to ask if it was bad communication from the Fed or economists not understanding...
There's a lot more here so let's break it down...
First, a return to those survival instincts.
There is very little upside to an economist making outrageous predictions.
Safety in numbers: If you're wrong alongside everyone else, you keep your job...
Which is probably why precisely 68% of responses are within the 3-12 month bands.
Bell curve wins again...
Even though many economists noted the huge amounts of uncertainty in their comments, they have to give an answer.
“The Fed will likely continue to be dismissive of strength led by transitory price increases, but data over the coming months will be important for gauging the persistence of strong price increases,” noted Veronica Clark, economist at Citi.
“However, as April data releases so far have highlighted, there is substantial uncertainty around the path of inflation, and all economic data, in coming months.”
Those comments don't make it into the survey data though...
This is the problem with surveys.
It's all binary numbers and boxes to tick.
Which is presented as RESULTS.
Which makes the headline sounds certain... 👀
Reuters poll: Fed's core PCE inflation concern threshold is 2.8% - economists
'Economists' on the end is a nice touch: it really adds some authority to the number, and isn't that the name of the game?
The job of the media is to deliver certainty.
Well-known media personalities: Are they the most-informed, or the ones who speak with the most conviction?
In the media, there's no room for fence-sitting or considering uncertainty and probability, especially in the headlines.
Accuracy is sacrificed for certainty, all in the name of clicks.
In this case, James Knightley (chief international economist at ING) rode to the rescue of any confused readers who dared to venture beyond the headline...
“I have put 2.8%, but to be honest anything above 2.5%.
However, it is more about how sustainable it looks rather than a specific monthly figure and has to be viewed in the context of what is happening to growth and jobs.”
What kind of context might that be?
“If we have core PCE above 2.5% in early 2022 as well, we will seriously have to consider an accelerated QE tapering with a rate hike before the end of the year,” he added.
The words of someone used to dealing with uncertainty.
It's a perfect illustration of why it's so important to read beyond the headline and make your own interpretation of the information presented...
Draw your own conclusions.
The most interesting nugget in that article...
Only four economists penciled in that inflation measure at or above 2.8% - the expected discomfort rate for policymakers - in any quarter in the forecast horizon, confounding financial markets’ fears of higher price pressures.
Soooo, wouldn't a more accurate headline be
Economists guessed with a low degree of certainty that 2.8% core inflation would make Fed uncomfortable while only 8% of them guessed that inflation will reach that level
Who's going to click on that?
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