They can’t predict anything. Everything they do is after the fact.

]]>There’s a huge FOMC problem in the 1st qtr. of 2022.

]]>Ram, That’s certainly reasonable. I still believe that NGDP growth in the 2020s will be about the same as in the 2010s, roughly 4%.

Are you investing in Hypermind, where you can profit if NGDP growth averages more than 2.4% in the second half?

]]>Nothing wrong with your approach, I just use a more complicated one:

For a given quarter q, I first compute the annual average NGDP growth rate since q – 1, q – 2, q – 3, etc. I then compute a weighted average of these. I say we’re on target in quarter q if this weighted average equals the target growth rate. If not, I compute what NGDP should have been in quarter q for that to be the case, and compute the percent by which actual quarter q NGDP needs to grow or shrink to achieve that optimal level. That percentage is my (retrospective) measure of monetary policy stance in quarter, with neutral being a value of 0.

For weights, I give 5 years prior to q a weight of 1, and have the weight decay exponentially in both directions from that peak weight, reaching 0.05 in the most recent quarter. This ensures that recent quarters don’t change the target much (a la level targeting), which quarters more than 10 years old don’t either (a la average growth rate targeting), but the particular number choices are a bit arbitrary. Finally, I found that a target of 4.2% results in this algorithm indicating we had basically achieved a neutral stance in Q2 of 2018, a time when inflation was about 2%, inflation expectations were about 2%, unemployment was near its nadir and didn’t fall much further, and growth was reasonably brisk. So that felt like it gave the right answer.

Per this algorithm, in Q2 NGDP needed to increase by 0.4% (absolute rate) to achieve neutrality, but will achieve neutrality by Q3 if we see 6.0% NGDP growth next quarter (annual rate). So on this model, ideally we’d see 6.0% next quarter, and then maintain close to 4.2% thereafter. But again, I expect we’ll see a lot more than that unless the Fed changes course soon.

]]>See this chart from John Hussman for example:

https://www.hussmanfunds.com/wp-content/uploads/comment/mc190805m.png

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