One year ago, as part of its always entertaining long-run forecasting exercise, Bank of America predicted that GDP growth in 2015 and 2016 would be 3.3% and 3.4% respectively.
Fast forward one year, when in its updated "long-run" forecast, Bank of America's crack economist Ethan Harris admits he was off by "only" 30% in his prediction of next year's GDP, and instead of 3.3%, he now "forecasts" 2015 GDP to be... 2.3%.
Not only that, but BofA has now also taken down all over its medium-term GDP forecasts lower by 0.4% and its terminal growth rate is now down 10% from 2.2% to 2.0%. Expect next year to see the first sub 2% potential growth rate of the US.
This is how he justified his dramatic overestimation of US growth in just 12 months:
1.We expect real GDP growth to converge to potential growth after 2016, which we expect to be around 2.0%.
2. We expect that the long-run unemployment rate (the NAIRU) resides around 5.0%, due in part to demographic factors.
3. We expect the Fed to hit its 2% target for the PCE deflator by 2018.
4. We expect interest rates to converge to slightly lower long-run levels due to ongoing fiscal headwinds and lower potential growth.
Compare these revised assumptions to what he penned just one year ago here.
But the biggest laugh line, like last year, is the following:
Obviously, there is considerable uncertainty in forecasting many years out, so these should be viewed as rough baseline numbers. For example, if history is our guide, at some point in the next decade the US will experience a recession, but predicting a recession far in advance is almost impossible. We plan to update this table on a regular basis.
So to summarize, the chief economist of a TBTF bank was off in his one year forward "forecast" by 30%, but because prediction a recession "far in advance", even if in reality one may very well already be taking place, he would rather just assume 2% or greater growth for the next decade, and just leave it at that.
Because clearly Bank of America's clients don't pay with millions of soft dollars for someone to actually tell them the truth.