Fed: Lower your expectations even more

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.