2022’s Unexpected Economics: Many Forecasts Were Wrong

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Last Updated on: 31st January 2023, 07:26 pm

The state of the economy made major headlines for large parts of 2022. With some of the highest inflation the U.S. had seen in four decades and sky-high interest rates, there was a lot to talk about.

Many economists weighed in and offered their forecasts about what we could expect at the end of the year. Some experts even projected volatility in the market would level out and bring inflation back down to nearly 2% and interest rates below 1%. I probably don’t need to tell you those predictions turned out to be less than accurate. If you want to learn more about protecting your IRA or 401(k) from today's generational inflation, I suggest checking out Augusta Precious Metal's 100% free Inflation Survival Kit today.

Let’s have a look at how the real economy differed from those forecasts – and how retirement savers might act based on what could be coming in 2023.

Economists Fail to Predict the Future of 2022

The economic impacts of 2022 were so deep, you’d think someone would have seen it coming. But when we look back at the predictions of what the year would be like, it seems practically no one could have guessed the financial reality that was to come.

And when I say practically no one, I mean especially those whose very job it is to accurately forecast future economic conditions. Of course, no matter how much expertise you have, it’s impossible to see the future. 

But the fact remains that so many economists’ 2022 projections were 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 how those misfires are relevant to retirement savers.

When you think about economics, 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, and ideas about what may occur in those economies. 

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

No One Can See the Future, Admits Fed Chairman Jerome Powell

They say hindsight is 20/20, and when we look back to Federal Reserve Chairman Jerome Powell’s remarks from his last 2021 press conference, some people may regret overlooking this comment:

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 can actually show you a perfect vision of the future.

However, it’s usually reasonable to expect professional economists (particularly those who work at places like the Federal Reserve and Treasury Department) to make projections that will at least get somewhat close.

But in 2022, the Fed’s predictions were way off the mark. Not even close.

Here are just a few examples. The Federal Reserve’s December 2021 Summary of Economic Projections (SEP) said the as-yet-unknown December 2022 PCE (personal consumption expenditures) inflation index should come in at 2.6%.[2] Unfortunately, those numbers don’t match up with reality. High inflation was persistent throughout last year and 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 a target rate of 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]

In the words of a recent Wall Street Journal article, “Miss a change of this importance and there is little hope of getting anything else right.”[8]

I think we can all agree with that.

“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.”

Did Overlooking the Impact of the Money Supply Lead Predictions Off-Base?

In my opinion, one cause of the missed predictions was that forecasters did not accept the likely effects of the excess money supply. 

Insisting that inflation is temporary and purely a function of supply-side complications is ignoring what some, such as Johns Hopkins economics professor Steve Hanke, have claimed throughout this inflation cycle to be an obvious sign: 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’s one prediction that proved to be true.

But it seems like the effect this increase could have on inflation has been dismissed time and again by both private and public economists. In a 2021 testimony before Congress, Fed Chairman Jerome Powell said, “M2 . . . does not really have important implications.”[12] 

Not long ago, Moody’s Analytics chief economist Mark Zandi published a breakdown of what he sees as the drivers of inflation. He said zero of the high inflation we’ve been enduring over decades is due to the massive expansion of the money supply.[13]

On a related note, Zandi said on Twitter last February: “inflation has peaked.”[14] That declaration aged very badly.

In the end, woefully inaccurate projections by economists and other forecasters can be due to many different reasons. Unforeseeable, large-scale events can always nudge the rudder of the economy. But misreadings of data also cause missed predictions; and some misreadings may at least partly be rooted in an inability or even unwillingness to consider certain explanations for that data.

Whatever the reasons projections can go so badly, for retirement savers the consequences can be huge. Let’s chat about that briefly before we close out.   

There Are No Financial Prophets: Expect the Best, Plan for the Worst

As far as I’m aware, no notable economist made any prediction about how much net worth U.S. households would lose in 2022. If they do exist, those forecasts very likely suggest nothing would have been lost. Prominent projections at the time based on key indicators such as inflation and interest rates didn’t indicate that kind of metric.

According to a recent report by MarketWatch, the household net worth reality proved to be seriously concerning: 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 we’ve seen since we started tracking the data in 1959. Only during the financial crisis did we see a greater decline.[15]

As for the financial crisis, it’s worth noting: 11 years after the 2008 crisis began, roughly half of Americans reported no improvement in financial condition, and 1/4 said their financial situation was worse.[16]

I want you to understand how significant the impact of unforeseen events can be on your financial outlook. Serious consequences can even result from partially foreseen events that turn out to be worse than anyone thought they would be. In the end, few “experts” accurately projected how much financial damage Americans suffered through in 2022. Now, many of those everyday Americans wonder how they should go forward – and the outlook for 2023 is uncertain.

One option is to consider adding physical assets to your holdings that have a history of performing well in hard times. Physical precious metals are key examples. Gold and silver have been praised for showing strength during the worst of the pandemic shutdowns.[17] Also, the fact that they performed well during the financial crisis meant a lot to savers who purchased them beforehand.[18]

The last twenty years have also shown that precious metals have potential use as longer-term, core assets. The World Uncertainty Index indicates a steady rise in the number of global shocks since the beginning of the millennium.[19] Over that same period, silver appreciated way over 400% and gold climbed almost 600%.[20]

Whether or not you decide to hedge your savings with these metals is, of course, your decision – and only you know what your financial situation and future goals really are. But I suggest retirement savers think long and hard about how to prepare themselves for events outside their control. If even financial professionals can be this dead wrong about the direction of the economy, it’s best to assume that if the worst happens, you won’t see it coming. Make sure you’re prepared for any possibility by investing with a top-rated gold IRA company in 2023.

If inflation is eating into your IRA or 401(k), don't wait – get your free Gold IRA Guide today to see how gold and precious metals can help you weather the storm to come.

Don't wait, protect your portfolio today. To find out how, don't miss Augusta's free gold IRA investing web conference.

Works Referenced

[1] FederalReserve.gov, “Transcript of Chair Powell’s Press Conference” (December 15, 2021, accessed 1/5/23)

[2] FederalReserve.gov, “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] FederalReserve.gov, “Summary of Economic Projections.”

[5] FederalReserve.gov, “Open Market Operations” (accessed 1/5/23).

[6] ConsensusEconomics.com (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., https://twitter.com/markzandi/status/1588222317506793473 (accessed 1/5/23).

[14] Mark Zandi, Twitter post, February 9, 2022, 8:43 a.m., https://twitter.com/markzandi/status/1491407285247430663?lang=en (accessed 1/5/23).

[15] Rex Nutting, MarketWatch.com, “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, Bankrate.com, “Survey: Nearly 1 in 4 American adults are worse off now than before the Great Recession” (June 13, 2019, accessed 1/5/23).

[17] CNBC.com, “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.”