The Federal Reserve took no new action after its November meetings today, continuing on the same path, using some minor monetary easing and announcing that the federal funds rate will remain at its current level until at least mid-2013. Charles Evans of the Chicago Fed, who has been calling for a bigger intervention to maximize employment, bravely dissented from the left, becoming the first FOMC member to do so since 2007.
But the bigger set of data, what makes the Fed’s continued path look woefully inadequate, consists of their revised economic growth forecast:
The Fed predicted that the economy would expand between 2.5 percent and 2.9 percent in 2012, and between 3 percent and 3.5 percent in 2013. Both ranges are significantly lower than its last projections, made in June.
The Fed also predicted that the rate of unemployment would remain above 8.5 percent at the end of 2012, and above 7.8 percent at the end of 2013.
These forecasts, published four times a year, do not have a particularly good track record, but they do offer a window on the state of the policy makers’ minds. In a word: Glum.
But not glum enough to do anything about it!
Calculated Risk has the full numbers in a chart. The unemployment rate is projected at 9.0 to 9.1% by the end of this year, 8.5 to 8.7% by the end of 2012, 7.8 to 8.2% by the end of 2013, and 6.8 to 7.7%, still high, by the end of 2014. And inflation is projected at below 2%, below the target, for all four of those years. The Fed continues to fail at both its mandates.
I agree with Matt Yglesias here. The current path of growth would be fine if it were the mid-1980s or something, and the economy was just sort of humming along. There would be jobs for those who needed them and trend growth would be at around the normal rate. But these are not ordinary times. 14 million people are out of work, and if you’re over 40 and you lose your job, you can expect debilitating long-term unemployment. This is not a time for moderate growth. It’s a time to do something big to get millions of Americans back to work, to catch up to the trend growth predicted from before the crisis. The chart at the top is the most important one there is. The gap between trend growth and real growth means that millions of American lives are suffering needlessly.
My view is that means we need to be aiming for a period of rapid catch-up growth to reduce unemployment and restore the economy to full capacity. But the FOMC meekly “anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.” If the unemployment rate is not currently at a level consistent with the mandate and is also not converging rapidly toward a level consistent with the mandate, then in my view the FOMC ought to do something new and dramatic in order to fulfill its mandate. Instead, the FOMC is standing pat. They think 9.1 percent unemployment and moderate growth is fine and they don’t intend to do anything about it.
Nor does Congress.