Wednesday, May 20, 2009

The Fed's outlook - now versus a year ago

AlphaNinja - Earlier today the January meeting's minutes were released. Thought I'd compare the projections with the year-ago estimates.

Long-term projections were not available last year. Why do we have them now? Most likely it's to put a rosy number next to a ghastly number (2009-2011 estimates), for purposes of justifying huge government outlays i.e., "But look, based on our LONG TERM outlook, we'll balance the budget!" Anyway - all we can really compare are 2010 estimates.

-2010 Real GDP growth - has come down from a range of 2.75 to 2.5%. Color me skeptical.
-2010 unemployment rate expectation is now 9-9.5% vs an expected 5% last January. Just last October the estimate was 6.5-7.3%, so a pretty big increase!

The issue AlphaNinja has is that the current "Longer Run" unemployment estimate is 4.9%, unchanged from the last meeting. We worry that the FOMC is ignoring many structural changes (anti-growth actions by the administration, and a natural "debt-destruction" pattern that our country may enter) when coming to it's "long-run" estimates, especially in regards to the unemployment rate.

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