Central Banks Suffer from Recency Bias – Do You?
Last week, Bank of Canada Governor Stephen Poloz flipped on his recent bias that the Canadian economy was strengthening – though he does expect a second-half bounce back from the Fort McMurray wildfires.
“Recency bias” is a psychological phenomenon where people overweight more recent events compared to longer-term trends when making decisions. The “data dependency” policy of the U.S. Federal Reserve is a form of recency bias, rather than focusing on longer-term trends. This bias has kept the Fed on the sidelines all year having had an expectation for four rate hikes this year when they started last December. Does the tendency toward recency bias support the notion that central bankers cannot forecast longer-term trends or is it something deeper?
Read more online at The Globe and Mail: http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/central-banks-suffer-from-recency-bias-do-you/article31821029/