“It’s not like we understood the macro economy perfectly before, and this was a pretty unique time,” said Jason Furman, a Harvard economist and former Obama administration economic official who thought that lowering inflation would require higher unemployment. “Economists can learn a huge, healthy dose of humility.”
Economists, of course, have a long history of getting their predictions wrong. Few saw the global financial crisis coming earlier this century, even once the mortgage meltdown that set it off was well underway.
Still, the recent misses were particularly big. First, many economists dismissed the possibility of rapid inflation. When prices took off, Fed economists and professional forecasters widely expected at least a brief period of contraction and an uptick in unemployment. Neither has materialized, at least so far.
“It was always going to be difficult to forecast what an economy was going to look like emerging from a mostly unprecedented pandemic,” said Matthew Luzzetti, chief economist at Deutsche Bank, whose team’s recession forecast last year proved too pessimistic.
Not all economists expected a recession last year. Some correctly expected inflation to fall as pandemic disruptions faded. But even most of them were surprised by how little damage the Fed’s campaign of rate increases appears to have caused.