Monday, December 6, 2010

Federal Reserve Predicts High Unemployment Through 2012

The Federal Reserve Open Market Committee recently updated its forecasts for 2011 and 2012, including higher than previously-forecast unemployment ranges.

The new central tendency (removing the highest and lowest forecasts to get a feel for the "median") for 2011 is 8.9 percent to 9.1 percent, compared to earlier projections of 8.3 percent to 8.7 percent. Using the midpoint of the ranges, the new forecast is a full half-percent higher than just five months earlier.

The 2012 numbers are even worse, with a new range of 7.7 percent to 8.2 percent, up from 7.1 percent to 7.5 percent, an increase of 0.65% from midpoint to midpoint.

By traditional and formal measures, we are in an economic recovery. But the stubbornly-high unemployment might suggest an extremely-unusual assessment of business risk and growth prospects, or some structural change in the economy, or both.

The former is easier to deal with than the latter.

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