By Jamie McGeever

ORLANDO (Reuters) – If the numbers are still not reliable, can economic policymakers or investors continue to be cautious?

Because of the unstable economic data in the immediate post COVID world, the New York Federal Reserve decided to suspend its real-time GDP growth tracker.

“The uncertainties around the pandemic as well as the consequent volatility of the data have posed many challenges to the Nowcast modeling,” New York Fed said on its web site.

Although other institutions are yet to do so, economic forecasting is still in suspended animation.

The government mandated world recession has no historical precedent. Economists, investors, and policymakers have no comparable model to use, which leaves huge uncertainty about what the future holds.

Investors have been dependent on trend-driven and cyclical analyses for decades. This has led to the largest losses.

To put it bluntly: Any confident prediction as to where growth, inflation and employment are heading over the next one or two years should be treated with caution.

Citi’s Economic Surprise Indexes show how wild the numbers can get. They measure whether incoming data exceeds or falls short of consensus forecasts.

The average weekly change of the G10 surprise index between 2003 and February 2001 – just before the outbreak of the pandemic — was 0.03 points. This average weekly change has risen to 0.3 since March 1, last year, a 10x increase.

This has meant that there have been more extreme peaks and valleys in the index, which means that the weekly surprise standard deviation (SD) is now 17 instead of 7.5. If the standard deviation is low, it means that data tend to cluster close together. A high reading indicates that they spread more widely.

The pattern is similar across different economic regions. Similar figures are not available for the U.S. Economic Surprises Index. However, they are much higher for the Euro Area, where the weekly pandemic surprises in the week of September 11, 2001 are 20% more than average for the last 17 years.

Is it ACTION or PATIENCE?

These numbers, however, are severely distorted by the lockdowns that occurred in March 2020. This brought large parts economic activity to a grinding halt across the globe. Then, there was the surprising strong, quick recovery.

Willem Buiter is an adjunct professor of public and international affairs at Columbia University. He was a former Bank of England policymaker.

Even though information can sometimes be hard to comprehend, we have it. He says that you just need to pay more attention when interpreting the information because normal cyclical patterns and our understanding of economic trends are in flux.

This doesn’t necessarily mean that textbooks need to be abandoned entirely. Nor should this prevent policymakers turning to them to get guidance about where they should go next. These economic fundamentals remain valid.

Buiter says it best: “We need to look up words we haven’t used before.” We know the correct pronunciation.

The effects of the pandemic continue to skew data. Inflation is the most notable. The inflation rate is at its highest level in years and far above the central bank target in many places around the globe. This was due to supply shortages and high food and energy costs, as well rising demand.

Buiter is one of many prominent academics, financial market heavyweights, and ex-politicians who are urging Fed officials to reconsider its belief that inflation remains “transitory.”

Prior to the Great Financial Crisis the Fed almost always raised interest rates, with an annual inflation rate at 30 year highs. The scarring of 2007-09 is deep and the gap between inflation and rock-bottom rates has never been greater.

Similar to the previous example, post-pandemic uncertainty has obscured the visibility of economic data. The policy outlook is also clouded by this fog.

Mary Daly from San Francisco Fed stated Tuesday that acting without clarity was risky. In the face of unpredicted uncertainty, it is best to accept the necessity to wait. While this may seem like a difficult task, patience is one of the best actions we can take.

(By Jamie McGeever, Editing by Andrea Ricci