The forecasts for GDP growth, unemployment, inflation, and interest rates all flatline after 2016. As of now, the CBO’s official position is that the US economy will remain stable with no recession until at least 2025.
If you find this particular prognostication hard to believe, you aren’t the only one. Nevertheless, this is what the government agency with the best forecasting record says we should expect.
I’ll go out on a limb here and say that the CBO is wrong. I am 100% certain we will have a recession before 2025. We can debate when it will start, what will cause it, and how long it will last, but not whether it will happen.
Economists Are (Still) Clueless
I wrote these next few paragraphs three years ago, but what I said then is still true today.
In November of 2008, as stock markets crashed around the world, the Queen of England visited the London School of Economics to open the New Academic Building. While she was there, she listened in on academic lectures. The Queen, who studiously avoids controversy and almost never lets people know what she's actually thinking, finally asked a simple question about the financial crisis: "How come nobody could foresee it?" No one could answer her.
If you've suspected all along that economists are useless at the job of forecasting, you would be right. Dozens of studies show that economists are completely incapable of forecasting recessions. But forget forecasting. What's worse is that they fail miserably even at understanding where the economy is today. In one of the broadest studies of whether economists can predict recessions and financial crises, Prakash Loungani of the International Monetary Fund wrote very starkly, "The record of failure to predict recessions is virtually unblemished." He found this to be true not only for official organizations like the IMF, the World Bank, and government agencies but for private forecasters as well. They're all terrible. Loungani concluded that the "inability to predict recessions is a ubiquitous feature of growth forecasts." Most economists were not even able to recognize recessions once they had already started.
In plain English, economists don't have a clue about the future.
If you think the Fed or government agencies know what is going on with the economy, you're mistaken. Government economists are about as useful as a screen door on a submarine. Their mistakes and failures are so spectacular you couldn't make them up if you tried. Yet now, in a post-crisis world, we trust the same people to know where the economy is, where it is going, and how to manage monetary policy.”
Central banks tell us that they know when to raise or lower rates, when to resort to quantitative easing, when to end the current policies of financial repression, and when to shrink the bloated monetary base. However, given their record at forecasting, how will they know? The Federal Reserve not only failed to predict the recessions of 1990, 2001, and 2007; it also didn't even recognize them after they had already begun. Financial crises frequently happen because central banks cut interest rates too late or hike rates too soon.