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Fed Forcasts Inflation, Unemployment

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Dee Dee

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Looks like the Fed is starting to behave like the NAR and other groups in the way they have to adjust their overly optimistic predictions downward.

http://biz.yahoo.com/ap/080220/fed_economy.html

WASHINGTON (AP) -- The Federal Reserve on Wednesday lowered its projection for economic growth this year, citing damage from the double blows of a housing slump and credit crunch. It said it also expects higher unemployment and inflation.

Under its new economic forecast, the Fed said that it now believes the gross domestic product will grow between 1.3 percent and 2 percent this year. That's lower than a previous Fed forecast for growth, which at that time was estimated to be between 1.8 percent and 2.5 percent.

GDP is the value of all goods and services produced within the United States and is the best barometer of the country's economic fitness.

With economic growth slowing, the Fed projected that the national jobless rate will rise to between 5.2 percent to 5.3 percent this year. That is higher than the central bank's old forecast for the rate to climb to as high as 4.9 percent. Last year, the unemployment rate averaged 4.6 percent.

And, with energy prices marching upward, the Fed also raised its projection for inflation. The Fed now expects inflation to be between 2.1 percent and 2.4 percent this year. That's higher than its old forecast for inflation, which was estimated to come in at around 1.8 percent to 2.1 percent.
The Fed said its revised forecasts reflected a number of factors including "a further intensification of the housing market correction, tighter credit conditions .... ongoing turmoil in financial markets and higher oil prices."
 

Restrain

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Let's see. We have increasing fuel and energy costs, driving up the costs of everything else. That takes disposable funds out of the pockets of the public. Then the Fed increases the rates because of things costing more. That means your credit cards, ARMS, etc go up, taking more disposable funds out of the pockets of the public.

The local stores generate less business because people are buying less, because they have less in their pockets to spend. This generates less sales tax income to the cities. They increase their tax rates to offset the loss, taking more disposable income out of the pockets of the public. The stores lay off employees, because they have less income due to a declining business and higher taxes. These people have no disposable income in their pockets.

Pretty soon there's no disposable income in the pockets of the public except for the top 15%, who have enough income to ride out such downturns, and they can't influence the economy significantly.

What then?
 

Riick

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What then?? We've been here before in the 1970's

Can you say Stagflation ??

Stagflation, a portmanteau of the words stagnation and inflation, is a macroeconomics term used to describe a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession). The term stagflation is generally attributed to United Kingdom Chancellor of the Exchequer Iain MacLeod, who coined the term in a speech to Parliament in 1965.
Stagflation came to be recognized as a potentially important macroeconomic problem in the 1970s, when it afflicted many countries in the developed and developing world. Prior to the 1970s, the prevailing Keynesian school of macroeconomics assumed that inflation and stagnation were unlikely to occur together. Macroeconomists at that time believed that stagnation could typically be cured by expansionary monetary or fiscal policies, while inflation could be cured by contractionary monetary or fiscal policies. When both stagnation and inflation occurred at the same time, this called into question existing macroeconomic theories and also posed a dilemma for the standard policy remedies that had been used to stabilize the economy in the past.

Economists today typically offer two main explanations of stagflation. First, stagflation can occur when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable. Second, both stagnation (recession) and inflation can be caused by inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply, and the government can cause stagnation by excessive regulation of goods markets and labor markets. The global stagflation of the 1970s is often blamed on both causes: it was largely started by a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to try to avoid the resulting recession (stagnation), causing a runaway wage-price spiral.

-- Sound familiar ??? If NOT.... It probably will - in a year or three
 

Terrel L. Shields

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Bad Fed policy and kowtowing to Wall street instead of the overall economy has put us in this spot and until there is a major shakeout at the Fed, it will remain so.
 
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