How Central Banks Set Inflation Forecasts and Why They Get Them Wrong

Central banks publish inflation forecasts every quarter, and they are almost always wrong. But that doesn't mean they are useless. In this episode, Lucas and Luna dig into the mechanics of how central banks produce their inflation projections — the models, the assumptions, the judgment calls — and why being wrong is part of the point. Lucas walks through the Bank of England's fan chart as a concrete example: the widening cones of uncertainty, the central tendency, and the moment in 2022 when the entire forecast band shifted upward by two percentage points. Luna pushes on whether these forecasts actually guide policy or simply justify decisions already made. They also discuss the Bank of Canada's use of 'risk scenarios' and what happens when a central bank's internal model misses a structural shift like deglobalization. By the end, listeners will understand why a wrong forecast can still be a good one — and why the process matters more than the number. #CentralBanks #InflationForecasting #MonetaryPolicy #BankOfEngland #FanChart #BankOfCanada #EconomicModels #ForecastErrors #InflationTargeting #Macroeconomics #PolicyTransparency #DataScience #FederalReserve #ECB #CentralBankIndependence #FexingoBusiness #BusinessPodcast #Economics Keep every episode free: buymeacoffee.com/fexingo