Superforecasters Say No Fed Interest Rate Hike Until 2016

Superforecasters Say No Fed Interest Rate Hike Until 2016

We know how horrible “experts” are at forecasts and Fed rate hike predictions are one of the best examples. However, what about superforecasters who are not experts, but use a methodical method (not quants and not SAC or Point72) of determining whether events will happen, trying to eliminate good “coin tossers”. Bloomberg has a great article on the topic.

Some people are simply better predictors than others. Most people allow themselves to be biased by some factor in the modeling of a prediction, but those who are really good at predicting can unemotionally assess a wide variety of variables in order to see the “big picture” and make an accurate forecast.

The term “superforecasters” comes from Philip Tetlock, a researcher from Toronto who gained notoriety in 2005 with a study that showed almost everyone fails at making predictions. That said, there were a few exceptions, and Tetlock called these people “superforcasters.”

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Tetlock put on a “prediction tournament”, where 59 people out of 2,800 emerged as consistently accurate forecasters. Of note, the superforecasters outperformed the others by over 60% by the fourth year, and nearly 70% of these predicting mavens could do it year after year.  However, Tetlock says these people are not geniuses and their skills can be learned by others.

Superforecasters say no Fed interest rate hike until at least Feb 2016

The superforecasters are siding with the general consensus when it comes to when the U.S. Fed is likely to raise interest rates. Tetlock says that this group of top predictors typically focuses on historical“base cases” before delving into minutia, and as a group they forecast that there will be no rate hike until next year.

“They say liftoff is more likely after January,” notes Warren Hatch in an exchange with Bloomberg, the chief investment strategist at Catalpa Capital Advisors and a superforecaster himself. “My own personal view is that the markets are underpricing a liftoff at the December meeting. However, I’ve learned to trust the wisdom of my fellow superforecasters.”

If you want to learn to be a superforecaster, start with an “outside view,” explains Hatch. Experts are often bogged down by details, he points out, such as what the futures market is predicting, the latest employment data are showing, or what Fed officials are saying.

Superforecasters “want to know the bigger picture,” Hatch emphasizes. They want to know “under what circumstances has the Fed started raising rates in past cycles? How about other central banks around the world? That helps set an initial base rate on which to base their forecasts.”

Finally, superforecasters fine tune their projections with more detailed data to reach the most accurate possible conclusion with the information they have available.

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