The messy, tricky, hairy task of economic forecasting

Summary

Marketplace Morning Report: "The messy, tricky, hairy task of economic forecasting"

Date: January 28, 2026
Host: David Brancaccio
Guests: Susan Schmidt (Portfolio Manager, Exchange Capital Resources), Chris Farrell (Senior Economics Contributor)

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Episode Overview

This episode dives into the inherent challenges and paradoxes of economic forecasting, especially in light of recent headlines about layoffs and anticipation around announcements from the Federal Reserve. Host David Brancaccio explores why, despite frequent inaccuracies, economic forecasts remain a vital tool for everyone from central bankers to households. The discussion features insights from portfolio manager Susan Schmidt on the current labor market and the tech sector’s AI boom, as well as from Chris Farrell on the value and pitfalls of forecasts.

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Key Discussion Points and Insights

The State of Economic Forecasts and the Fed’s Role

• [00:16–00:43] David Brancaccio previews the day’s big news: a Federal Reserve meeting expected to keep interest rates unchanged, with attention paid to the Fed's views on jobs, prices, and growth.

“Why do we embrace economic forecasts when they're so often wrong?”
—David Brancaccio ([00:16])

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Labor Market: Headlines vs. Reality

• [00:43–01:22] Recent major layoffs (Amazon: 16,000, UPS: 30,000) generate alarming headlines, but Susan Schmidt emphasizes these large companies do not represent the whole picture.
  • U.S. employment is mostly driven by smaller businesses.
  • National unemployment rate remains steady despite headline layoffs.
  • The Federal Reserve assesses such broad data, not just high-profile layoffs, when setting policy.

“Remember that employment in the U.S.—the majority of it happens at businesses that are smaller than Amazon or UPS... overall, the unemployment rate has been holding steady.”
—Susan Schmidt ([01:01])

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Stocks and the Ongoing Tech/AI Boom

• [01:22–01:54] Brancaccio asks Schmidt about market reactions to big tech earnings and AI’s effect on valuations.
  • Investors are optimistic about AI-driven productivity.
  • Concerns about whether high valuations are sustainable, but no sign yet of an imminent "bubble burst".

“At the moment, I think investors are positive on the outlook.”
—Susan Schmidt ([01:31])

“It’s certainly not the same bubble that we saw in the tech crash in the turn of the century. But... expectations are always perhaps more optimistic than what can be delivered. Wait and see.”
—Susan Schmidt ([01:54])

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Humility and Humor in Economic Prognostication

• [02:14–02:26] Lighthearted banter about the "turn of the century" reminds listeners how long these cycles and conversations have been repeating—and how humbling forecasting can be.

“The turn of the century, them were days. 1899. You and me, Susan, we sound ancient.”
—David Brancaccio ([02:14])

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Are Forecasts Worth the Trouble?

• [03:59–04:38] Brancaccio cites Lao Tzu: “Those who have knowledge don’t predict. Those who predict don’t have knowledge.”
  • Despite poor accuracy, financial services and institutions are steeped in forecasting.
  • Chris Farrell introduces research showing just how off forecasts can be, especially around big events like recessions.

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Research on Forecasting Accuracy

• [04:38–05:36] Chris Farrell points to studies on forecasting:
  • IMF study: average forecasts badly missed the approach of recession, usually projecting continued growth up to the downturn.
  • Study of S&P 500 predictions: year-ahead “guru” predictions are accurate only 47% of the time—worse than a coin flip.

“The track record gets famously poor... what is rare is accurate forecasting of the turn to recession.”
—Chris Farrell ([04:50])

“Their accuracy rate on average was roughly 47%, which statistically is worse than a coin flip.”
—Chris Farrell ([05:13])

“When an analyst gets something right, they brag... when they get it wrong, guess who doesn’t return the phone calls and own up.”
—David Brancaccio ([05:36])

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Uncertainty, Data Problems, and the Value of Ranges

• [05:54–06:21] Farrell notes that data is often messy and subject to revision, and many events are fundamentally unpredictable.
  • Modern forecasts present a range of outcomes, not certainties.
  • Michael McCracken (Federal Reserve Bank of St. Louis) argues that forecasting is valuable for planning, not prediction.

“You can't get rid of the uncertainty when guesstimating the future. I mean, major shifts... often reflect the impact of outlier events.”
—Chris Farrell ([05:54])

“Forecasts aren't perfect because life is uncertain. But... the activity offers insights for planning ahead.”
—Chris Farrell, summarizing McCracken ([06:21])

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Using Forecasts Wisely

• [06:58–07:21] Brancaccio shares an anecdote: the "choose your own adventure" nature of some forecasts conveys a practical truth. Companies must plan for positive, flat, and negative scenarios alike.

“One of our forecasts is that the economy gets better. Another one... it’s flat. And another one is that it gets worse. And so like that seems ridiculous at first, but... you got to plan for all three.”
—David Brancaccio ([06:58])

“In the end you do, because you make your bets. But then you also hedge in case that bet goes wrong.”
—Chris Farrell ([07:21])

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Notable Quotes & Memorable Moments

• On the limits of forecasting:

  “Those who have knowledge don’t predict. Those who predict don’t have knowledge.”
  —Lao Tzu, quoted by David Brancaccio ([03:59])

• On using forecasts as planning tools:

  “Treat them as one input into a broader planning exercise.”
  —Chris Farrell ([06:21])

• On humility in economics:

  “The track record gets famously poor… accurate forecasting of the turn to recession [is] rare.”
  —Chris Farrell ([04:50])

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Useful Timestamps

• 00:16 — Setting up the day’s Fed meeting and the state of economic forecasting
• 01:01 — Schmidt puts large layoff headlines in context
• 01:31 — AI and tech stocks optimism
• 03:59 — Lao Tzu’s warning about forecasters
• 04:38 — IMF & S&P 500 forecast accuracy studies
• 05:54 — The messy, uncertain nature of economic data
• 06:21 — Value of forecasting as a planning tool, per Michael McCracken/Fed
• 06:58 — Brancaccio’s forecast anecdote: planning for every scenario
• 07:21 — Hedging bets in planning
• 07:33 — Close of the core discussion

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Summary:
The episode underscores that while economic forecasts are persistently flawed—often spectacularly so—they remain indispensable as tools for planning and stimulating necessary debate. Forecasts offer ranges, not answers, and should always be treated as just one input among many. As the guests remind us, everyone from major financial players to ordinary citizens relies on forecasts, not for certainty, but for guidance when making their own bets on an uncertain future.

Transcript

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[David Brancaccio]

Why do we embrace economic forecasts when they're so often wrong? I'm David Brancaccio in Los Angeles. The Federal Reserve meets this morning ahead of its briefing around 2 o' clock while Washington time interest rates will remain unchanged. I'm not alone in that prediction. We'll be listening closely to the Fed's view on jobs, prices and growth. Let's turn to Susan Schmidt now. She's portfolio manager at Exchange Capital Resources. Good morning.

[Susan Schmidt]

Good morning.

[David Brancaccio]

You know, it's a tough economy to figure out. I know that's what the Fed is trying to do, right? I mean, many economists say not a lot of layoffs, but not a lot of hiring. Yet 16,000 people are gonna go at Amazon. Corporate people, 30, 30,000 people gonna go at the parcel delivery service UPS. I mean, there's layoffs.

[Susan Schmidt]

We are seeing headlines with big layoffs right now, those large numbers. But remember that employment in the U.S. the majority of it happens at businesses that are smaller than Amazon or ups. And overall, the unemployment rate has been holding steady. That's what the Federal Reserve is looking at when they try to determine how interest rates are impacting the economy.

[David Brancaccio]

Now, you follow stocks very closely. It's your job. We get some big tech companies today. Broad brush. Are you expecting strength?

[Susan Schmidt]

So far, the market is taking those announcements well and people are optimistic that the AI trend can continue, that it's going to bring increased productivity to the market overall and to companies. That can always change. But at the moment, I think investors are positive on the outlook.

[David Brancaccio]

I'm not hearing from you that you think that it's a bubble that's about to pop. All this AI hype.

[Susan Schmidt]

It's certainly not the same bubble that we saw in the tech crash in the turn of the century. But it is interesting that the valuations can be this high. People don't know how much productivity this can bring. That's where expectations are always perhaps more optimistic than what can be delivered. Wait and see.

[David Brancaccio]

The turn of the century, them were days. 1899. You and me, Susan, we sound ancient. Susan Schmidt at Exchange Capital Resources. Thank you so much.

[Rima Reis]

Thank you.

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[David Brancaccio]

Lao Tzu, the 6th century Chinese poet wrote that those who have knowledge don't predict. Those who predict don't have knowledge. The financial services industry doesn't listen to the poet from the macroeconomy to stocks, the air runs thick with forecasts. The folks at the Federal Reserve meeting today will read forecasts. I read them aloud here. But since reality so often diverges from forecasts, is this prediction stuff a fool's errand? Marketplace's senior economics contributor Chris Farrell has been looking at the research on this and he wants to see value in forecasting.

[Chris Farrell]

Chris hey David, I do want to make that case.

[David Brancaccio]

We know that longer view economic financial market forecasts are not particularly accurate. And I think I mean charitable by not particularly accurate. Right?

[Chris Farrell]

Right. You're being very charitable because the track record gets famously poor. Let's take recessions and recessions aren't rare. Economies are in recession about 10 12% of the time and what is rare is accurate forecasting of the turn to recession. So there's this IMF study and it looked at private and public forecasts of recessions in 63 countries over a 22 year period and the average forecast predicted inflation adjusted growth a 3% a year before the recession. Now another study attract financial gurus in their year ahead price targets for the S&P 500. Now this would matter, right? Their accuracy rate on average was roughly 47%, which statistically is worse than a coin flip.

[David Brancaccio]

My thing has long been when an analyst gets something right, they brag they answer media phone calls to brag more when they get it wrong. Guess who doesn't return the phone calls and own up. But in fairness, the news never stops and a static forecast is out of date the moment the forecaster hits send right economic data.

[Chris Farrell]

It's messy. It gets revised over time, and we don't have good data about so many vital aspects of economic activity either. And then more fundamentally still, you can't get rid of the uncertainty when guesstimating the future. I mean, major shifts in economies and financial markets, they often reflect the impact of outlier events.

[David Brancaccio]

I mean, do we get anything out of these forecasts? Given the track record, I think so.

[Chris Farrell]

And Michael McCracken, he's a senior economist at the Federal reserve Bank of St. Louis, and he makes a sober case for the value in forecasts in a recent interview. Good forecasters these days typically offer a range of possible outcomes, so they're trying to take that uncertainty into account. Forecasts aren't perfect because life is uncertain. But the reason why everyone from central bankers to small business owners to everyday households makes forecasts is that the activity offers insights for planning ahead. So instead of dismissing data driven forecasts, treat them as one input into a broader planning exercise.

[David Brancaccio]

I remember being at the launch of an official forecast. I was all waiting to hear where the economy was going, and the forecasters came out and said, well, one of our forecasts is that the economy gets better. Another one of our forecasts is that it's flat and another one is that it gets worse. And so like that seems ridiculous at first, but then you realize companies have to think that way too. You got to plan for all three in the end.

[Chris Farrell]

In the end you do because you make your bets. But then you also hedge in case that bet goes wrong.

[David Brancaccio]

Marketplace's senior economics contributor, Chris Farrell, thank you very much.

[Chris Farrell]

Thanks a lot, David.

[David Brancaccio]

In Los Angeles, I'm David Brancaccio. It's the Marketplace Morning report. From APM American Public Media.

[Rima Reis]

I'm Rima Reis. And this week on this Is Uncomfortable, fellow podcaster and host of Scamfluencers, Sarah Haggie joins me to sort out your work drama. We answer your questions about scammy bosses, managing workplace friendships and co workers who pushed boundaries a little too far. I'm gonna stay at your place for a bit while I'm breaking up, and obviously I'll need a key. And that is how you get a squatter. Listen to this Is Uncomfortable on your favorite podcast appliance.