The Atlanta Fed’s estimator for Q1 GDP growth, which gets updated based on various economic reports as they roll in, currently looks like a cartoon:
Discussion
I saw some commentary on X about this chart that all the gold being repatriated is counted as negative for GDP. Anyone know if there is truth to that?
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Do you think it really went down that suddenly? Or were they just doing a terrible job of estimating in previous quarters?
It’s mainly that their model is not geared well for big nonlinear changes. Mostly it’s exports affecting it.
The GDPNow model incorporates the balance of trade (imports vs exports) in its model. Some companies front-loaded imports recently to try to combat immediate effects of potential tariffs (a hedge of sorts), which drastically changed the recent balance of trade, and likely impacted the GDPNow model predictions.
That said, predicting the economy in the short term is a loser’s game in general. Most (all?) economic models break completely when something changes direction.
“More heat than light” by Philip Mirowski is a great primer on the fallacies of neoclassical economics, and how they try to emulate the sciences and create physics-like models and equations which fail to actually model or forecast the ‘real’ economic world. Modern economics is not a science, but is envious of science.
it seems to me economists are pretty good at projecting economic activity over the next 18 months but when it's failing is when they try to predict things 10 years out where they get 100% wrong every time
Roughly 70% of economists predicted a recession in 2023. They have ZERO predictive power. Most of the time, tomorrow looks similar to today and yesterday, that is truly the extent of the predictive power they have. When something changes, all their models break. This is borne out of the data.
Saw nostr:nprofile1qqs9uvfevnpw7gn2v7nudzk86lfsyjgnd6h2j0je0rnc9c87g0nlfmcpzamhxue69uhhyetvv9ujucm4wfex2mn59en8j6gpz3mhxue69uhhyetvv9ujumn0wd68ytnzvu6g249f point this out regarding Doge-ing.
Lyn Alden often discusses fiscal dominance versus monetary dominance in the context of how economic policy is primarily driven.
Fiscal dominance (1 on your scale): The government runs large deficits, and central banks must accommodate by keeping interest rates low or buying government debt (essentially printing money). This leads to inflation and debt monetization.
Monetary dominance (10 on your scale): Central banks have control, focusing on inflation targeting and price stability, even if it means restricting the economy and tightening liquidity.
Right now, we're closer to fiscal dominance, probably around a 3 or 4 on your scale. The U.S. government is running large deficits, and despite the Fed tightening, real rates aren't fully reining in spending. If inflation remains persistent and rates stay lower than inflation, we could drift further toward 1 (full-on fiscal dominance). If the Fed regains control and enforces strict monetary policy (like Volcker in the 80s), we’d move back toward monetary dominance (closer to 10).
Right now, deficits and government spending seem to be setting the tone more than central banks.