Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14
Sanctions and Airliners - What’s the U.S. Empire’s Agenda? - 19th July 14
Gold And Silver – BRICS And Germany Will Pave The Way - 19th July 14
Choppy Stock Market in Recent Weeks - 19th July 14
Is The Stocks Bull Market Over? - 19th July 14
Edward Snowden Towers Over His Enemies - 19th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Fed Upgrades U.S. GDP Growth Forecast, Remains Significantly Concerned About Unemployment

Economics / US Economy Feb 17, 2011 - 03:12 AM GMT

By: Asha_Bangalore

Economics

Best Financial Markets Analysis ArticleThe minutes of the January FOMC meeting show the Fed more optimistic about economic growth in 2011. The Fed raised the central tendency for real GDP growth in 2011 to 3.4% - 3.9% from the November forecast of 3.0% to 3.6% (see Table 1). The revisions to projections of economic growth in 2012 and 2013 were small compared with the revision of estimates for 2011.


Consistent with the upward revision of real GDP, the unemployment rate was lowered from the November prediction. However, the unemployment rate remains at an elevated level of 8.8% to 9.0% in the fourth quarter of 2011. Predictions of inflation, overall and core, were both raised slightly for the entire forecast period.

Source: http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20110126.pdf

Most members continue to hold that there is a great deal of uncertainty still. The minutes listed five major sources of uncertainty - (1) the nature of economic recoveries after financial crisis, (2) the effects of unconventional monetary policies, (3) structural problems in the labor market, (4) the future path of fiscal policy, and (5) global economic outlook. Despite these significant sources of concern, most members view that risks are broadly balanced with regard to real GDP growth. This is marked change from the view held in November, when most members held the opinion that downside risks to economic growth by far outweighed the upside risks. Pent-up demand and increased ease of credit availability were cited as factors leading to stronger-than-expected growth. Budgetary woes of state and local government translating to a decline in their spending that exceeded expectations, lower house prices and its attendant adverse consequences on household balance sheets and spending, and significantly slow improvements in the labor market which would raise household savings and reduce spending were seen as factors that could stall economic growth.

With regard to the labor market, although the outlook for the unemployment rate was balanced, members noted that if firms are pessimistic about underlying economic conditions and remain reluctant to increase payrolls, the pace of decline of the jobless rate would be less than the current prediction. The staff presented the current status of research about structural unemployment in the January deliberations. The main conclusion was that structural unemployment had risen but by less than actual increase in the unemployment rate. The minutes also noted that many factors that accounted for the increase in structural unemployment would "recede over time." The discussion also mentioned that mismatches of labor skills and "hiring practices" could not be solved by monetary policy. A few others hold that under current conditions monetary policy still had a positive role to play in reducing joblessness.

On the inflation front, compared with the assessment in November, the probability of deflation had dropped significantly. A few members saw upside emanating from the large size of the Fed's balance sheet. The persistent gap between the jobless rate and the long-run benchmark was seen as source for inflation to be lower than projected. A few members noted that higher energy and commodity prices presented an inflationary risk. Others added that there is only small pass-through of these higher prices to overall consumer price indexes.

Given the nature of economic conditions, the Fed plans to complete its purchases of longer dated Treasury securities. The minutes indicate a difference in opinion about quantitative easing, with some members suggesting a reduction as economic conditions improve, while others were unsure about the impact and held that the program should continue. A few others indicated that it was not likely that economic conditions would change sufficiently to justify a termination of the second round of quantitative easing.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014