Fed Lowers Forecast

This is bad news for all of us, but more than anyone, for President Obama: “Fed lowers economic expectations for 2011.”

Top Federal Reserve officials expect the unemployment rate to remain around nine percent at the end of next year and eight percent at the end of 2012, according to internal forecasts that drove the central bank to take new efforts to boost the economy three weeks ago.
The 18 top leaders of the central bank expect the U.S. economy to grow at a 3 to 3.6 percent pace next year, which by their calculations will be enough to bring joblessness, currently at 9.6 percent, down to the 8.9 to 9.1 percent range in late 2011. In projections made in June, the same officials had been more optimistic, forecasting 3.5 to 4.2 percent growth in 2011 and an unemployment rate that would decline to the 8.3 to 8.7 percent range.

If these projections are right, the Democrats, who are banking on a full recovery finally kicking in, will be in serious trouble in 2012. The minutes also shed light on the Fed’s decision to buy $600 billion in Treasury bonds. Some members, like a number of independent economists and other commentators, expressed concern that the move will prove to be inflationary:

[T]he document also leaves little doubt that several Fed officials remain uneasy with the action. Some anticipated that the decision would have only a “limited” effect on the pace of recovery, arguing that action should be taken only if the odds of deflation “increased materially.”
And some “noted concern” that the action “could put unwanted downward pressure on the dollar’s value in foreign exchange markets” or [lead to] “an undesirably large increase [in] inflation.”

If that happens, the double whammy will be one more parallel to the Carter administration.

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