“Whatever will be, will be. The future is not ours to see.” This refrain remains as true for central bankers as for other aspiring economic forecasters. Forecasting is done adequately when everything is stable and the future turns out to be like the past; indeed, standard models used by central banks virtually force forecasts to revert to past trends. But when a break comes, central banks are as clueless to foresee it as anyone else. Forecasts for 2008 made as late as the middle of the same year are a case in point.

Neither central bankers, nor anyone else, have a good way of predicting future fluctuations in either output, inflation or interest rates more than a few quarters ahead. In order to express a view about the likely level of official interest rates two years hence, the respondent would have to try to work out what might be the expected growth rate of output three years hence and the probable inflation rate four years from now. If you believe that there are strong forces returning the economy to equilibrium, such medium-term forecasts are perfectly do-able, but, if such strong centripetal forces exist, monetary policy becomes easier all around, with or without the benefit of official forecasts.

The present context is one of enhanced uncertainty. What will be the sustainable rate of growth of output over the next five, or 10, years? Will we emulate Japan or bounce back? Nobody knows. What will happen to inflation? Will accommodative monetary policy struggle to hold deflation at bay, or will the explosion of central bank balance sheets (and fiscal deficits) usher in inflationary forces?