Wednesday, February 18, 2009

Fed Downgrades Economic Forecast for this Year

Do not expect a quick ending to the recession/depression lite, because today the Federal Reserve sharply downgraded its projections for the country's economic performance this year. They are predicting that the U.S. economy will actually shrink, while unemployment will grow.

Dear God when will it end.

Under the Fed's new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. Personally I think they are being conservative here, I bet that it will be between 9.0 and 9.2. Of course this is using the metrics that don't count millions, and the actual number will be over 16 percent. Now the old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent. This was always a laugh. Employment is almost always the last part of the economy to heal once it emerges out of recession and is in recovery mode. Therefore the jobs picture will remain grim for years to come.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent. The last time the economy registered a contraction for a full year was in 1991, by 0.2 percent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 percent drop in 1982, when the country had suffered through a severe recession.

Fed officials do predict that the economy should pick up speed in 2011, growing by as much as 5 percent, which would be considered robust, though I again say they are being optimistic.

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