Two narratives about how recovery from the COVID-19-driven economic downturn will play out are competing in the business press – the Federal Reserve’s and that of the financial markets.Market economists typically forecast wider changes in quarter-over-quarter gross domestic product (GDP) than their counterparts at the Fed.But the current discrepancy is wider than it has been in decades.

This is creating so much confusion in financial news that a recent of Squawk Box discussed the extent to which “markets seem reluctant to believe the Fed’s policy goals.” The markets see recent GDP growth as closely aligned to stock market performance: a dramatic drop in the second quarter of 2020 and an equally dramatic recovery from third-quarter 2020 to third-quarter 2021.The Fed sees GDP as driven by structural economic considerations that move only gradually from quarter to quarter.As a result, the Fed estimated a smaller drop in GDP for second-quarter 2020 and a slower recovery ever since.

Over the last year, the Fed view was proven right multiple times.“Triple-I’s forecasts fall within the consensus central banks view, as represented by the Fed for the U.S.and the International Monetary Fund (IMF) for the large insurance markets we follow,” said Dr.

Michel Léonard, Triple-I vice president and senior economist. He said the expectations gap comes down to three economic considerations: