Economics, U.S. Economy

The Big Ugly: Fed massively cuts its economic outlook

Let me sum up the new Federal Reserve forecast in one word: pain! Note especially next year in the table below.

No boom. No bounce. No last minute surge. Just more of the same-old muddle right though Election Day 2012. What was the Obama’s White House worst-case scenario is now the baseline—and that’s assuming no worsening of the EU financial crisis. And who wants to bet on that right now.

And here is how Goldman Sachs interprets things:

1. The Federal Open Market Committee downgraded its views on economic growth, as expected. The “central tendency” of 2011 real GDP growth forecasts was taken down more than a percentage point, to 1.6-1.7 percent (vs. our 1.4 percent); the 2012 forecast central tendency was revised down 80bp and the 2013 range 60bp on average. The 2013 and 2014 growth forecasts were less optimistic than we expected, centered on growth in the low-to-mid 3 percent range—still fairly modest given the expectations of still-high unemployment at that horizon.

2. The expected unemployment rate in 2013 was revised up to 7.8-8.2 percent, from 7.0-7.5 percent previously. Also, the implied FOMC view on the economy’s “equilibrium” unemployment rate has moved up slightly—the midpoint of the long-term “central tendency” range is now 5.6 percent, vs. 5.4 percent previously.

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