Economic Forecasts Were Off in 2022

Let the record show: Back in 2021, practically no one, it seems, foresaw the economy that ultimately came to pass in 2022. Not the level and persistence of inflation; not the severity of the interest-rate increases; and certainly not the resulting volatility that wiped tens of trillions from the real net worth of U.S. households last year.

And when I say, “practically no one,” I mean especially those whose very job it is to accurately forecast future economic conditions. There are no working crystal balls, of course, and there always will be a risk of unforeseen events upsetting the economic and geopolitical applecart.

But the fact remains that so many economists’ 2022 projections were way, way off, including the projections of those charged with the responsibility of managing the world’s largest economy.

I’m going to spend some time talking about that. Not just about the forecasting misfires themselves, but also about the retirement savings consequences – both actual and potential – that can arise from those misfires.

When you are thinking about these things, of course it makes sense to get some context by paying attention to developments throughout both domestic and global economies. And it’s wise to make note of the forecasts, beliefs, ideas, etc., about what may occur in those economies.

However, it also is prudent to recognize the potential for those forecasts to be completely wrong – and even more prudent to use retirement-savings measures designed to soften the impact of bad economic conditions that “experts” never saw coming.

I’m going to discuss one such measure later on. For now, let’s take a closer look at what a tough year this turned out to be for economic forecasters.

Powell Admission: No One Knows Economic Conditions a Year in Advance

In his final press conference of 2021, Federal Reserve Chairman Jerome Powell made an offhanded remark many folks now likely wish they’d taken more to heart:

No one knows with any certainty where the economy will be a year or more from now.[1]

We all know that, of course. There is no such thing as a crystal ball – at least, not one that actually does what crystal balls are supposed to do.

However, it’s usually reasonable (I think) to expect change professional economists (particularly those who work at places like the Federal Reserve and Treasury Department) to make projections at least will be in the ballpark, even if they are a little off the mark.

Not in 2022. Not even close.

Here are just a few examples. According to the Federal Reserve’s December 2021 Summary of Economic Projections (SEP), the as-yet-unknown December 2022 PCE (personal consumption expenditures) inflation index should come in at 2.6%.[2] That now seems very unlikely, given the persistence of high inflation throughout last year and the fact that the PCE index for November was 5.5% – more than twice the figure projected for December.[3]

That’s not all. According to the same SEP, the Fed Funds rate as of last month was projected by Fed policymakers to be 0.9%.[4] Instead, we ended 2022 with the target rate at 4.25% to 4.50%.[5]

That’s a big miss, but it was even bigger for those who handed in their forecasts to Consensus Economics, which bills itself as the “world’s leading macroeconomic survey firm.”[6] According to their collective projection from December 2021, interest rates last month were to be just 0.5% – nearly 90% below where they actually were.[7]

As the Wall Street Journal noted recently, “Miss a change of this importance and there is little hope of getting anything else right.”[8]

Hear, hear.

“Underlying all these errors,” the Journal added, “and those from pretty much everyone else, was the mistaken belief that inflation would quickly go away. Covid-related supply-chain problems would fade away, they thought, and falling inflation would allow the Fed to raise rates gently, sparing asset prices. Instead, inflation spread to virtually all categories of goods and services, worsened by the energy- and food-price spikes that followed Russia’s invasion of Ukraine.”[9]

Did Some Economists Ignore the Role Money Supply Could Play in Triggering Inflation?

The “oops” on inflation is particularly troubling, because – in my view – it’s due in no small way to the unwillingness (for whatever reason) on the part of many forecasters to accept the role played by excess money supply in driving prices upward.

To see inflation as temporary and purely a function of supply-side complications is, I believe, to ignore what those such as Johns Hopkins economics professor Steve Hanke have claimed throughout this inflation cycle to be the elephant in the room: The increase in our nation’s money supply by more than 40% from early 2020 to mid-2022.[10]

Hanke and an associate predicted back in the summer of 2021 that the bloated money supply would drive inflation to between 6% and 9% by the end of that year and remain there.[11] And that is what has happened.

Yet consideration of the role that the money supply could play in elevating prices has been summarily dismissed by many public and private economists alike. In 2021 testimony before Congress, Fed Chairman Jerome Powell said, “M2 . . . does not really have important implications.”[12] More recently, Moody’s Analytics chief economist Mark Zandi published a breakdown of what he sees as the drivers of inflation – and attributed exactly zero of the decades-high inflation we’ve been enduring to the massive expansion of the money supply.[13]

On a not-entirely unrelated note, Zandi shouted from the Twitter rooftop last February that “inflation has peaked.”[14] We all know how poorly that declaration aged.

Ultimately, there can be a variety of reasons for woefully inaccurate projections by economists and other forecasters. The sudden onset of entirely unforeseen events certainly is one of those. But so, too, is a misreading of data; a misreading that may at least partly be rooted in an inability or even unwillingness to consider certain explanations for that data.

Whatever the reasons for why projections can go so shockingly awry, the fallout can be enormous for retirement savers. Let’s chat about that briefly before we close out.

Forecast Inaccuracies Underscore Importance of Hedging Retirement Savings

To my knowledge, there were no projections in 2021 about how much net worth would be lost by U.S. households in 2022. If there were, those forecasts very likely would have suggested nothing would have been lost, based on the prevailing projections at the time for key indicators such as inflation and interest rates.

According to a recent report by MarketWatch, the reality proved to be the stuff of nightmares: From January 2022 through September 2022, real net worth – meaning, nominal net worth that additionally factors in the impact of inflation – plummeted by $13.5 trillion among U.S. households. That represents the second-fastest decline on record (the data series dates back to 1959). Only the period of the financial crisis saw a drop of greater magnitude.[15]

Speaking of the financial crisis, it’s worth noting this: 11 years after the crisis’ 2008 onset, roughly half of Americans reported no improvement in their financial condition, while one-quarter said their financial situation was worse.[16]

Why am I telling you all of this?

Because I want to hammer home that the potential consequences to one’s savings from the impact of unforeseen events can be very significant. Serious consequences can even result from partially foreseen events that turn out to be worse than anticipated. Few “experts” accurately projected the extent of the financial damage Americans ultimately suffered through in 2022. Now, many of those same regular Americans are left wondering how they should proceed from here – particularly considering that the outlook for 2023 is uncertain.

One option is to consider adding to one’s holdings those “real” assets that in the past have responded positively under adverse conditions. Physical precious metals are prime examples of such assets. Gold and silver have been lauded for the strength they demonstrated during the worst of the pandemic shutdowns.[17] Additionally, their performance during the years of the financial crisis proved to be of great value to those savers who had the foresight to acquire them beforehand.[18]

Over the last two decades, metals have demonstrated their potential utility as longer-term, “core” holdings, as well. According to the World Uncertainty Index, there has been a steady rise in the number of global shocks since the beginning of the millennium.[19] Over that same period, silver has appreciated well over 400% and gold has climbed nearly 600%.[20]

How – or even if – you hedge your savings obviously is your own decision. What isn’t within your power is whether your hard-earned nest egg is put at risk in the first place by economic and geopolitical uncertainty. Because things are so uncertain, to protect what you’ve saved, you must do what you can to prepare for anything. As 2022 revealed once again, economic events and conditions can unfold in a way largely unforeseen by “experts,” and they sometimes do unfold at what can prove to be a significant – even lasting – cost to retirement savers.

[1], “Transcript of Chair Powell’s Press Conference” (December 15, 2021, accessed 1/5/23)
[2], “Summary of Economic Projections” (December 15, 2021, accessed 1/5/23).
[3] Bureau of Economic Analysis, “Personal Consumption Expenditures Price Index” (December 23, 2022, accessed 1/5/23).
[4], “Summary of Economic Projections.”
[5], “Open Market Operations” (accessed 1/5/23).
[6] (accessed 1/5/23).
[7] James Mackintosh, Wall Street Journal, “Wall Street Nailed Earnings but Missed the Bear Market” (December 25, 2022, accessed 1/5/23).
[8] Ibid.
[9] Ibid.
[10] John Greenwood and Steve H. Hanke, Wall Street Journal, “The Fed Ignored the Money Supply, and a Recession Is Coming” (July 7, 2022, accessed 1/5/23).
[11] John Greenwood and Steve H. Hanke, Wall Street Journal, “Too Much Money Portends High Inflation” (July 20, 2021, accessed 1/5/23).
[12] Greenwood and Hanke, “The Fed Ignored the Money Supply.”
[13] Mark Zandi, Twitter post, November 3, 2022, 1:31 p.m., (accessed 1/5/23).
[14] Mark Zandi, Twitter post, February 9, 2022, 8:43 a.m., (accessed 1/5/23).
[15] Rex Nutting,, “Household wealth dropped by $13.5 trillion from January to September, second-worst destruction on record” (December 12, 2022, accessed 1/5/23).
[16] Sarah Foster,, “Survey: Nearly 1 in 4 American adults are worse off now than before the Great Recession” (June 13, 2019, accessed 1/5/23).
[17], “Gold could see ‘Goldilocks conditions’ in 2023, strategist says” (December 20, 2023, accessed 1/5/23).
[18] London Bullion Market Association, “Precious Metal Prices” (accessed 1/5/23).
[19] World Uncertainty Index (accessed 1/5/23).
[20] London Bullion Market Association, “Precious Metal Prices.”

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