The Reserve Bank’s deputy governor delivered a stark warning on Monday, cautioning that overconfident “false prophets” could harm the economy with misguided predictions while defending the central bank’s decision.
Speaking at the Economic Society of Australia, Hauser noted that while public economic debate is “healthy,” the certainty with which some express views on the economy and monetary policy is “less desirable”.
He noted that the landscape is often polarised, with differing views facing harsh criticism and changes in opinion being depicted as failures.
This dynamic, he said, has created a world of “winners and losers, gurus and charlatans, geniuses and buffoons”.
“When the stakes are so high, claiming supreme confidence or certainty over what is an intrinsically uncertain and ambiguous outlook is a dangerous game,” Hauser said.
“At best, it needlessly weaponises an important but difficult process of discovery. At worst, it risks driving poor analysis and decision making that could harm the welfare of all Australians.”
Defending against criticism aimed at the RBA in the past, Hauser explained that while it’s important to hold the central bank accountable for managing inflation and employment, the policy strategy to achieve these goals cannot be predicted with certainty.
“It is right to want to be confident that the central bank will bring inflation back to target and maintain full employment: that is the RBA’s mandate, and we should be held to account for it. But the policy strategy required to deliver that outcome, and the economic judgements that inform it, simply cannot be stated with anything like the same degree of certainty.
“Those pretending otherwise are false prophets.”
Hauser noted that central banks strive to avoid overconfidence – “a universal human failing” – by developing contingent hypotheses about the future instead of relying on overly precise forecasts.
Additional methods employed by banks, he said include: “Learning continuously – from our own forecast errors, from diverse quantitative models, from corporate liaison and other qualitative intelligence-gathering, from experience in other countries, and from internal and external challenge, including scenarios and ‘what-ifs’”.
The RBA has faced significant criticism over the years, especially in 2021 when then-governor Philip Lowe predicted that the cash rate would remain at 0.1 per cent until at least 2024. A year later, Lowe apologised to Australians who may have acted on the central bank’s forward guidance.
In November 2022, the Reserve Bank announced that it would be reviewing its approach to forward guidance.
