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On the quality of financial forecasting on one chart


An interesting graph caught my eye (Source: JPMorgan, Bloomberg). The thick white line is the Fed rate. Thin white lines and an orange line are market participants’ rate expectations based on forward contracts.

The interest here is that, even when making predictions about predictable events (in this case, forecasts of the key rate dynamics), people are more likely to make mistakes than they are right or even roughly right. But the Fed does not play against the market and its participants, which simplifies any assumptions about its behavior. If we are talking about a stock exchange game, where these same participants are already playing against each other at the rates of securities, currencies and commodities, the percentage of luck, presumably, is quite modest.

@AndreyHohrin
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