Three basic assumptions underpin the simple narratives: Government spending matters, monetary policy matters and there is a natural link between growth, unemployment and inflation. Investors who still have a touching faith in economic forecasts should consider the consensus one, two and three years ago. By October 2022, that growth for the year had dropped to 1.7%, and economists were sure that recession was imminent. The Fed’s “dot plot" median was even more depressing, projecting 2022 growth of just 0.2%. Simple narratives can be very useful when examining how markets behave, but don’t expect them to explain the economy.

Source: Wall Street Journal October 22, 2024 07:49 UTC