Fed downgrades growth forecasts, sees high unemployment for years ahead

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    Nov 03, 2011 3:25 PM GMT
    More hope and change? The only thing that's lingered from the stimulus is the debt and interest.


    The Federal Reserve sharply downgraded its projections for the U.S. economy Wednesday, warning that weak growth and high unemployment will be the norm for years.

    The Fed expects that the unemployment rate will be around 8.6 percent at the end of next year, down only slightly from 9.1 percent today, and will still be between 6.8 percent and 7.7 percent in late 2014. In their June forecast, Fed officials said joblessness would come down faster, to around 8 percent by the end of 2012, when the next presidential election will take place.

    Despite these projections, the Fed’s policymaking board declined during the two-day meeting that ended Wednesday to take any new action to boost growth, leaving ultra-low interest rates unchanged.

    Leaders of the central bank are coming around to a view they had resisted: that the economy, weighed down by consumer debt and a depressed housing market, will not soon return to its old path of growth. The pace of economic growth the officials expect in 2012 is not high enough to put Americans back to work in large numbers.

    Fed Chairman Ben S. Bernanke said Wednesday that problems in the housing market were more severe and stubborn than analysts had thought.

    “Evidently . . . the drags on the recovery were stronger than we thought,” he told reporters at a news conference.

    Economic growth picked up in the July-through-September months, to a 2.5 percent annual rate of growth. But that is not very fast for an economy with 9.1 percent unemployment, and both Bernanke and private analysts attribute the growth pickup in significant part to a reversal of the high fuel prices and other disruptions that held growth back earlier in the year.

    In deciding not to take any new steps to invigorate the economy, the Fed’s policy committee noted that growth “strengthened somewhat” in recent months. The Fed took action at its last meeting, in September, to try to lower longer-term interest rates and encourage growth.

    Government policy more broadly appears to be on hold, with few prospects for a deeply divided Congress to take steps that would encourage job creation. Bernanke signaled his consternation with this inaction, saying, “It would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs.”

    Some Fed officials had argued for the central bank to take further action to pump up growth, such as beginning new purchases of mortgage-related securities to try to lower interest rates and support the housing market. Bernanke said the strategy was “certainly something we would consider if conditions were appropriate,” but he declined to be specific about what those economic conditions would be.

    By declining to take new action, the Fed reserved some ammunition in case the economic outlook darkens further and the risk of a recession returns.
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    Nov 04, 2011 10:47 AM GMT
    southbeach1500 saidInteresting how all of the liberal hens have kept their beaks shut on this one...

    This is ultimately what will decide the 2012 elections. Particularly the congressional ones.