Earlier today I analysed the Wall Street Journal survey of economist forecasts for Q4 GDP. How accurate are economists’ forecasts in general? It varies, of course, but sometimes they miss by a long shot.
Consider, for example, the forecasts for 10-year Treasury yields in the October 2010 WSJ survey (Excel file here). The survey took place several weeks after Ben Bernanke’s August 27th speech at the Jackson Hole Fed symposium, which sent a clear message of accommodation. In fact, the WSJ survey specifically asked “Will the Fed resume a program of expanding its securities portfolio, also known as quantitative easing, most likely through purchases of Treasuries, at its Nov. 2-3 meetings?” 90-five per cent of the economists said yes.
So, what did they predict for the 2010 year-end 10-year yield? Here is a chart showing the distribution of forecasts.
And here is a table showing the yield forecasts for mid-year and year-end 2011.
Actually the low year-end forecasts were probably a reasonable assumption based on the expectation of expanded Fed treasury purchases. But 10-year rates began a significant rise immediately after the Fed’s November announcement of QE2 — obviously not what the economists expected (and probably not what the Fed had in mind either). The actual year-end 10-year yield was 31% higher than the average of the economists’ estimates made less than three months earlier.
Now, in the wake of the Treasury market’s reaction to QE2, let’s chart the forecast distribution for the latest (January 2011) WSJ expert opinion on 2011 year-end yields.
See my Treasury Yield Snapshot for regular updates on the current behaviour of Treasuries.