Fed: Lower your expectations even more

posted at 7:01 pm on November 24, 2010 by Fausta Wertz

The Fed lowers economic expectations for 2011 and the economic forecast isn’t pretty: Moderate growth will continue (it’s currently at 2.5%), the unemployment rate will likely go down to 9% a year from now, and inflation may rear its ugly head if unemployment goes to 6% range – hardly surprising considering how the Fed has been printing money like crazy, including its latest move, the QE2, Ben Bernanke’s brainchild.

QE stands for “quantitative easing”, the cruise-evoking euphemism for what amounts to a second spendulus stimulus. We’re already seeing how well the first stimulus worked, considering how Obama’s argument was that we needed the stimulus to keep unemployment at 8%.

Yeah, right.

The QE2 is that plan to buy $600 billion Treasury bonds in the hope of increasing growth and keep interest rates low. Skeptics like myself see it as paying off your MasterCard with your Visa.

The Fed is not without its dissenters,

the document also leaves little doubt that several Fed officials remain uneasy with the action. Some anticipated that they would have only a “limited” effect on the pace of recovery, arguing the action should only be taken if the odds of deflation “increased materially.”

And several “noted concern” that the action “could put unwanted downward pressure on the dollar’s value in foreign exchange markets” or “an undesirably large increase inflation.”

Commodity prices have already increased following the Fed’s QE2 proposal. The move is a deliberate devaluation of the dollar.

One can’t expect the Fed to come up with a more optimistic forecast right now. For starters, the data doesn’t lend itself to a rosy outlook. While unemployment figures may improve on a month-to-month basis, employers have many reasons to continue to remain reluctant to add to payrolls. Also, the Fed’s new quantitative easing plan would come under more fire if they make optimistic predictions that don’t pan out.

How will this economic outlook affect politics in 2011? Paul Mirengoff takes a look and sees the probability of the Democrats moving away from a hard-left agenda.

I hope Paul is correct, but as a pessimist, I also see it as an opportunity for the Dems to justify a hard-left agenda, blaming everything that can possibly go wrong (which it will), on the Republican Congress, right in time for the 2012 election, when unemployment supposedly will be at 8%.

Cross-posted at Fausta’s blog.


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At this point Ben might as well suggest praying to Aqua Buddha as engage in “Quantitative Easing.” It would at least have the advantage of being potentially less harmful.

Akzed on November 24, 2010 at 7:06 PM


Skeptics like myself see it as paying off your MasterCard with your Visa.

More like robbing Peter to pay Paul.

Tony737 on November 24, 2010 at 7:07 PM

, I also see it as an opportunity for the Dems to justify a hard-left agenda, blaming everything that can possibly go wrong (which it will), on the Republican Congress, right in time for the 2012 election,

This was why it was unfortunate for the GOP to take Congress. That will only help Obama’s chances of re-election. All that was really needed was for the GOP to win a few seats to make passage of any more sweeping legislation highly unlikely.

keep the change on November 24, 2010 at 7:08 PM

The remaining Democrats which were not already turned out of office are not sensible enough to tack right Economically.

Indeed, Nancy Pelosi is going to make sure what is left of her caucus keeps pushing the rudder hard to port.

The Chewbacca Defense on November 24, 2010 at 7:10 PM

“and inflation may rear its ugly head if unemployment goes to 6% range”

Just got back from getting gas; it’s up six cents per gallon from the same time last week. It’s now up 18 cents from about mid-October. That’s 6.08% in a month and a half.

I’ll skip the food price increases. My point is inflation is already rearing it’s ugly head.

Dusty on November 24, 2010 at 7:11 PM

I think I’ll open up a wheelborrow store.

Tony737 on November 24, 2010 at 7:15 PM

Whoa. Is the blog broken? The Megyn Kelly post disappeared.

flipflop on November 24, 2010 at 7:18 PM

Sounds like some people aren’t grateful for realizing how bad things would have been if Obama weren’t here.

Things would have been much, much worse.

If you don’t believe me, just ask him….

…or don’t, he’ll tell you anyway.

cntrlfrk on November 24, 2010 at 7:19 PM

This was why it was unfortunate for the GOP to take Congress.

keep the change on November 24, 2010 at 7:08 PM

Yes, it would have been much better for the same old people in congress making the same old decisions with nothing to stand in their way. You are right! What America really needed in the last election was the whole country to roll over to the liberal agenda. How great it would have been if we would have hastened the end of the greatest country on the face of the earth.

Tommy_G on November 24, 2010 at 7:21 PM

Gas is teetering at $3.00 in my area. Up from $2.50 a few months ago. For people on the edge who need to drive for work and like that…
“an undesirably large increase (in) inflation.” is already here.
-

RalphyBoy on November 24, 2010 at 7:25 PM

Ginger dollars. Yay.

Bishop on November 24, 2010 at 7:25 PM

Since the recession officially ended in June 2009, why is all this stimulus action needed? Could it be that massive deficit spending artificially ended it temporarily?

You get one guess.

GnuBreed on November 24, 2010 at 7:25 PM

I’m never going to sell my house.

Cindy Munford on November 24, 2010 at 7:35 PM

This sort of thing is why the Republicans need to distance themselves early and often from the other side of the aisle. Bipartisanship is just a way for leftists to blame others when their idiotic policies lead to ruin.
Naturally there will always be a few morons on the right who don’t follow this basic advice and happily reach across. McCain, Snowe, Collins, etc.

Grayson on November 24, 2010 at 7:39 PM

The kenites own you.

True_King on November 24, 2010 at 7:43 PM

http://www.creditwritedowns.com/2010/11/video-quantitative-easing-explained.html

Fed is buying the Treasury Bonds through Goldman Sachs. Ben Bernacke and Timothy Geithner are going to preside over the worst economy ever! Worse than the Great Depression if they are not stopped!

Today Russia and China agreed to stop using the dollar and trade only in their won currencys.
The Fed has driven interest rates to nothing and will now CREATE inflation guaranteeing that the funds we have that can’t grow will wither to nothing over time!

Buy land or commodities is the only way I can see to survive this fools errand.
I hope I’m wrong and someone can show me another way!

dhunter on November 24, 2010 at 7:47 PM

Bernanke is a moron. Our country is being run by morons. Run into the ground.

Boxy_Brown on November 24, 2010 at 7:52 PM

One can’t expect the Fed to come up with a more optimistic forecast right now. For starters

That’s OK, I don’t have any faith in their forecast anyway.

FloatingRock on November 24, 2010 at 8:22 PM

Time for more: food, guns, ammo.

ajacksonian on November 24, 2010 at 8:29 PM

The reason why commodity prices gone up because there really nothing to invest in that give a good return other than commodities. More investors means the commodities prices will go up.

jdun on November 24, 2010 at 8:34 PM

I guess SP was right!!!

Of course she is sooo dumb and it was pure coincidence

it was just an alternate way to get at your savings

your money isn’t really yours

Sonosam on November 24, 2010 at 8:37 PM

So the hopey changey crowd has figured out how to make prices go up, yet keep interest rates at an historic low.

As part of the middle class being relentlessly driven to extinction, how do I fight a government so set on killing off me and everyone like me?

MarkT on November 24, 2010 at 8:52 PM

More like paying off your Master Card with your Visa, which your are paying with a payday loan, as you sit on your Rent One furniture wondering when your next job will come along.

98ZJUSMC on November 24, 2010 at 8:59 PM

That’s OK, I don’t have any faith in their forecast anyway.

I have faith that they will revise it….

…..downward.

Unexpectedly.

But, it’s Bush’s fault.

98ZJUSMC on November 24, 2010 at 9:05 PM

Remember that nothing says ‘I’m ready for the coming economic meltdown’ like a case of Yoder’s Bacon! Plus and a few boxes of JHP just has ‘Thanksgiving’ written all over it…

ajacksonian on November 24, 2010 at 9:21 PM

The QE@ is basically about how the Fed is making the assumption that, if all these unemployed private sector folks were busy creating wealth like they would be if not for that evil Bush guy, the private sector would have created 600Bs of wealth since this debacle started. Hey folks, the government needs those 600Bs of new wealth creation to pay off it’s privileged special interests, so we’re just going to go ahead and print it anyways. So what could go wrong?

drfredc on November 24, 2010 at 9:29 PM

They want to spend your money

not have you spend your money

Sonosam on November 24, 2010 at 10:00 PM

You say: “… also see it as an opportunity for the Dems to justify a hard-left agenda, blaming everything that can possibly go wrong (which it will), on the Republican Congress, right in time for the 2012 election …”

The Dems control the executive branch and half of the legislative branch (Senate), so how is it that the Republicans control anything ultimately. Whatever happens in the next two years belongs to the Democrats, lock, stock and barrel. That is, of course, except for those things that are Bush’s fault.

stefano1 on November 24, 2010 at 11:07 PM

I read stories like this and I want to beat my head against the wall.

MAKE IT STOP!!

Jason Coleman on November 25, 2010 at 1:04 AM

This action by the Fed is absolutely an act of desperation. While other countries (such as in Europe) are taking their deficits seriously, we are becoming more and more the laughingstock of the planet.

The only thing that we will get (other than a devalued dollar and more debt) will be a greater deficit of respect from the community of nations.

oakland on November 25, 2010 at 8:09 AM

Sarah told Bennie it wouldn’t work and he didn’t listen. All you kids out there who are worried about getting SS at whatever retirement age the govt sets should just forget about it. Your debt is going to be so great that you’ll have to work for the rest of your lives. Pick a job that has a desk.

Kissmygrits on November 25, 2010 at 9:29 AM

The Fed’s QE2 is a desperate attempt to “DO SOMETHING” because no one in the beltway can tolerate the notion that they might be the problem.
QE2 is meant to lower interest rates, but high interest rates aren’t the problem!
QE2 is meant to increase liquidity, but lack of liquidity isn’t the problem!
The problem is fiscal, but fiscal actors are paralyzed by the glaring failure of almost everything they’ve tried so far.
The problem is NOT monetary, but monetary actors are the only ones still able to act.
So QE2 attempts to apply monetary tools to a fiscal problem and ends up looking like a vain attempt to push a string uphill. And then, the unintended consequences rear their ugly heads when it creates all kinds of havoc with everybody else and no benefit to its intended beneficiaries.
This is activist government at its worst. The beltway crowd is utterly incapable of imagining themselves as the problem rather than the solution, and they can do almost anything except the one thing that might solve the problem; Sit down and Shut up!!!

Lew on November 25, 2010 at 10:27 AM

Lets proceeed now to thank the Chinese for joining the Russians in stepping toward aboloshing the dollar. Its a step after taking all of our profitable production away then turning to a opposing Communist country, that must be responded to quietly but consistently. We need to find the resources we depend upon China for, and find other willing countries who’d like to have economies making those products. Taiwan is one, but there are so many other countries who need to be able to provide for their people who’ be more appreciative than the world hog CHinese.

johnnyU on November 25, 2010 at 11:58 AM