The Fed’s Great Optimism

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from 24/7WallStreet:



The Fed’s Great Optimism
Posted: June 23, 2011 at 6:45 am


The Federal Reserve barely cuts its forecast for GDP growth in this year and next. The agency estimated the economy will expand 2.7 percent to 2.9 percent this year, down from a forecast of 3.1 to 3.3 percent made in April. The Fed also said it sees 2012 growth between 3.3 percent to 3.7 percent, lower than its previous forecast. Unemployment will be above the “normal” levels of a recovery even in 2013. That means the jobless rate is likely to be above 8% for another two years.

The Federal Reserve must believe that there is such a thing as a “jobless recovery”. And, that recovery will also be accompanied by inflation which is now moving quickly higher because of oil and commodities prices

Barely a day passes when some large company says its earnings have been hurt by margin compressions brought on by increases in the cost of goods. For example, cotton prices could raise retail prices for nearly every clothing retailer in the country.

Drops in profits which sometimes lead to losses are almost always trigger layoffs. The last recession showed that, if it showed anything. The economy lost several hundred thousand jobs a month for over two quarters. And, even now, businesses are reluctant to add jobs, as the May unemployment numbers showed. The economy could very easily move into a period in which it sheds jobs again. Inflation, one of the great enemies of both consumer and business spending, will be a major trigger. ...........(more)

The complete piece is at: http://247wallst.com/2011/06/23/the-feds-great-optimism/#ixzz1Q6SYRnYZ