By Greg Robb, MarketWatch
JACKSON HOLE, Wyo. (MarketWatch) -- It was only fitting this year that as the central bankers gathered this weekend at the base of the Grand Teton mountain range for their annual summer retreat that clouds moved in, obscuring the spectacular view.
The same has happened with the country's economic outlook.
Federal Reserve officials and economists, who get together in Jackson Hole, Wyo., to typically discuss the outlook for the next 16 months, suddenly cannot see past the next 16 days.
The credit crunch and resulting financial-market turmoil, which started in the U.S subprime-mortgage market and now has spread around the globe, made conventional forecasting obsolete.
David Hale, an economist and a regular at the Jackson Hole conference, called the current environment "a crisis of information."
There are no accurate data about the true value of complicated securities tied to mortgages and where losses might pop up next, he said. The freeze in the commercial-paper market will also surely lead to losses, especially for small banks, but by how much is unknown, Hale added.
As a result, more bad news from the financial sector may roil the markets in coming days.
Most of the economists at Jackson Hole believe that a rate cut by the Fed is a foregone conclusion.
Carl Tannenbaum, chief economist at La Salle Bank/ ABN Amro, likened the disclosure of losses in financial firms to storm clouds moving into view.
"I remained concerned that there may still be bad news out there that will cause investors to hunker down once again, and that may make them more reluctant to venture out," Tannenbaum wrote in a recent report to clients. He said that his discussions with experts at Jackson Hole only confirmed this sentiment.
Jan Hatzius, chief economist at Goldman Sachs Group /quotes/zigman/188479/quotes/nls/gs GS +0.83% , said at the root of the problem is that many sophisticated investors and hedge funds made billions of dollars of investments with the belief that U.S. home prices would never decline. This widely held view is now being called into question, as economists say there is a strong chance that the median price of U.S. homes could decline this year.
It is difficult for economists to quantify the losses from these investments, according to Hatzius. Economists will have enough trouble gauging the likely default rate on mortgages in coming months as the economy slows down, he said.
The hard data on the impact of the credit crunch and market turmoil on the U.S. economy is also a few months away. The third quarter was almost half over when the crisis erupted.
Economists at BNP Paribas wrote in a research note that it "will be months" before the impact shows up in unemployment data.
The tightening of financial markets is likely to have a negative impact on GDP, especially in the fourth quarter. Fourth-quarter GDP data won't be released until January 2008.