Are Professional Forecasters Overconfident?

Research by the Federal Reserve Bank of New York, published on Tuesday, indicates that professional economic forecasters tend to overestimate their accuracy in long-term predictions while underestimating their short-term precision. The study, which analyzed data from the Survey of Professional Forecasters from 1982 to 2022, revealed that for forecasts two to four quarters ahead, actual errors were two to four times greater than the forecasters' estimated uncertainty ranges for both GDP growth and inflation. In contrast, for predictions less than three months out, forecasters typically overestimated potential errors. The study's author, Marco Del Negro, highlighted significant differences in uncertainty estimates among individual forecasters, suggesting that these findings challenge the rational expectations theory. Del Negro proposed that these discrepancies might stem from an over-reliance on varying models or priors in making longer-term forecasts.

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