A. "The Fed cuts US economy growth estimate for 2011 and ups unemployment. The Federal Reserve has cut its 2011 growth forecast for the US economy, newly released minutes of its last policy committee meeting reveal. The Fed expects growth of 3-3.6% next year, down from its previous 3.5-4.2% estimate. It also forecasts higher unemployment and lower inflation than before."
B. "After holding steady for three months, the U.S. unemployment rate rose to 9.8 percent in November, according to the U.S. Bureau of Labor Statistics.The report out Friday was a letdown for the country’s economics, many of whom had predicted much larger job growth figures. The disappointing news was another sign that the nation’s economy remains in a fragile state."
What's really going on.
The Federal Reserve faced a firestorm of criticism after implementing QE2, or Quantitative Easing Number Two. We forecast that unemployment would decline in November. So, what happened? Nothing. Unemployment actually fell. It is not yet reflected in the numbers for several reasons:
1. The Fed does not want economic indicators to show progress, at least not yet. To do so would raise questions about the timing of QE2. We expect the November unemployment numbers to be revised downward in January or February, 2011.
2. Likewise, GDP growth of 3.5% to 4% would, again, raise questions about the appropriateness of QE2.
Why would the Fed do this?
Economic policy in this day and age is all about managing expectations. By showing higher unemployment and lower growth, the Fed justifies QE2 and sets the stage for "surprising" increases in economic growth and "unanticipated" declines in unemployment during the first half of 2011.
We stand by our forecast: we expect U.S. employment to grow, unemployment to fall, and spending to recover over the coming months. (We do note, however, certain portions of our long term social and financial return forecast, the Fully Adjusted Return ® Forecast, have changed. Specifically, our forecast concerning the U.S. banking sector has turned markedly negative. Click here to review our track record with respect to the market crisis.)