Every year, professionals on Wall Street take a guess at what they think will happen in the coming year. This shows that nobody has a crystal ball.
The Blue Chip Survey of Professional Forecasters collected economic predictions from the last 21 years and was used by the St. Louis Federal Reserve to do some math. From 1993 to 2024, the regional Fed kept an eye on the study of firms, which included Wall Street giants like Bank of America and Goldman Sachs, as well as top manufacturers and insurers.
The end result? The predictions don’t work any better than flipping a coin.
For GDP growth, unemployment and the 10-year Treasury yield, the percentage of years in which the actual data fell within the range of the average bottom 10 and average top 10 forecasts was below 50%; on inflation, it was slightly better, at 56%.
Another useful thing about the St. Louis Fed study is that it looked at how big the misses were. When it came to GDP growth, the average absolute estimate error was 1%. This means that investors should expect GDP growth in 2025 to be between 1.1% and 3.1%, based on the 2.1% growth prediction for this year.
If most people were wrong about a certain way, the St. Louis Fed also looked at the bias. The bias is only important for the 10-year Treasury TMUBMUSD10Y +4.539%, where analysts have expected interest rates to rise by an average of 40 basis points.
