Fed projects high unemployment for next 3 years

Steve williams

Site Founder, Site Owner, Administrator
more doom and gloom.......

By MARTIN CRUTSINGER, AP

WASHINGTON — The Federal Reserve projects the unemployment rate will stay elevated until late 2015, suggesting it will keep short-term interest rates low for the next three years.

The latest economic forecasts released Wednesday after the Fed's final meeting of the year were little changed from September. But they coincided with a new communication strategy announced by the Fed that links future interest rate hikes with unemployment below 6.5 percent.

The unemployment rate was 7.7 percent in November.

The central bank said that it expects economic growth to improve next year but that it will be no stronger than 3 percent. Growth could increase to 3.5 percent in 2014 and 3.7 percent in 2015.

Unemployment will fall no lower than 7.4 percent next year and 6.8 percent by the end of 2014, the Fed projects. The earliest the Fed sees unemployment dropping below 6.5 percent is the end of 2015.

The Fed said it plans to keep its key short-term interest rate near zero as long as unemployment remains above 6.5 percent and inflation is expected to stay below 2.5 percent.

The latest forecast projects inflation will stay at or below 2 percent for the next three years. That gives the Fed more leeway to pursue aggressive stimulus measures.

In an effort to drive the unemployment rate lower, the Fed said after its meeting that it will spend a total of $85 billion a month to sustain an aggressive drive to keep long-term interest rates low. The goal is to encourage more borrowing and spending, which drives economic growth.

The Fed said it will continue buying bonds until the job market shows substantial improvement.

The projections made no mention of the "fiscal cliff," the combination of tax increases and spending cuts that are set to kick next month and threaten to push the economy back into a recession. But the modest growth and gradually lower unemployment next year suggest the Fed is assuming President Barack Obama and Republican lawmakers will reach a budget deal before then to avoid the cliff.

Bernanke has warned that the Fed does not have the tools to offset the damage to the economy if it goes over the cliff.

At the same time, Bernanke has said that if an agreement can be reached that addresses the nation's long-term budget challenges without slowing the recovery in the short term, next year could be "a very good one for the American economy."

Fear of higher taxes has yet to slow hiring. Employers added 146,000 jobs last month, the government said last week. That's about the same as the average monthly gain of 150,000 in the past year.

The unemployment rate fell to a four-year low of 7.7 percent last month from 7.9 percent in October. But the decline was mostly because more people without jobs gave up looking for work. The government only counts people as unemployed if they are actively searching.

The economy grew at solid 2.7 percent annual rate in the July-September quarter, more than double the 1.3 percent rate in the April-June quarter. But many analysts believe worries about the fiscal cliff are contributing to slower growth in the current October-December quarter below 2 percent.
 
Federal Reserve to keep rates near zero as part of US stimulus programme
Bernanke calls unemployment an 'enormous waste of potential' as Fed plans fresh asset buying to try to kickstart US economy

Dominic Rushe in New York

Ben Bernanke, the US Federal Reserve chairman, called unemployment an "enormous waste of human and economic potential" as he set new targets for the central bank's massive economic stimulus programme Wednesday.

After a two-day meeting, the Fed said it will keep interest rates at close to zero until the unemployment rate drops below 6.5%. The central bank also rejigged its multi-billion dollar monthly asset-buying programme in a fresh attempt to kickstart the lacklustre US economy as Bernanke warned that the argument over the fiscal cliff threatened to derail the recovery.

In its final meeting of the year, the Federal Reserve Open Market Committee (FOMC) said economic activity and employment had "continued to expand at a moderate pace in recent months, apart from weather-related disruptions".

Although the unemployment rate has declined, the FOMC said it remained "elevated" and set itself a target for reducing the numbers out of work. The US unemployment rate dropped to a four-year low last month of 7.7%, but the latest fall was driven in part by people quitting the labour force.

Bernanke said the decision to set targets made the Fed's policy more "transparent".

The shift is a major move for the Fed, which had previously said it intended to keep interest rates near zero at least until mid-2015. Chicago fed president Charlie Evans has been pressing for the Fed to commit to easing monetary policy until unemployment was 7% or core inflation was above 3%. The policy has become known as the "Evans Rule".

The move underlines the Fed's concern with US unemployment, which remains high even though the country has officially been out of recession since June 2009. Bernanke warned once again that failure to reach an agreement over the fiscal cliff would have dire consequences for the US economy.

Unless a compromise on the year end expiration of tax cuts and imposition of spending cuts can be reached "the economy will, I think, go off a cliff," he said. "I don't think the Federal Reserve has the tools to offset that event," he said. Bernanke said it was "exceptionally important and urgent" that a solution is reached.

"I'm hoping that Congress will do the right thing on the fiscal cliff," he said. "There's a problem with kicking the can down the road."

As the Fed seeks to drive down unemployment and stimulate the economy, the FOMC said it would begin buying $45bn of long-term Treasury bonds each month. The stimulus programme will replace another asset-buying scheme known as Operation Twist.

The latest asset-buying programme follows on from the Fed's decision to launch a third round of "quantitative easing" – QE3 – in September, aimed at stimulating the economy by buying mortgage-backed assets. QE3 is also an open-ended programme, unlike its predecessors. The US is now buying a total of $85bn a month in assets between its stimulus programmes.

"In determining how long to maintain a highly accommodative stance of monetary policy, the committee will also consider other information, including additional measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," the FOMC said.

Eleven out of 12 Fed officials on Wednesday voted to continue QE3, which buys $40bn of mortgage-backed securities each month.

"Taken together, these actions should maintain downward pressure on long-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the FOMC said.

"In short, the Fed is aggressively trying to add to the economy's strength, but its accommodation has become more clearly conditional. The impact of asset buying is debatable, but over time the effects are significant, in our view. The main risk is that inflation expectations start rising significantly; that has not happened so far," Jim O'Sullivan, chief US economist at HFE said in a note to clients.

"Come stronger unemployment results, elevated inflation readings, or Mayan apocalypse, it seems like Bernanke and his friends on the FOMC are just gonna keep on buyin'," Janney Fixed Income Strategy said in a note to clients.
 
The list of what the Fed didn't see coming is very, very long. Of course that doesn't mean it's good.

Tim
 
Many more layoffs recently announced at many engineering firms. The manager of our local Village Inn is switching FT staff to PT and laying off in anticipation of new heath care costs; they don't have the margins to pay an extra $12k/mo to put all the current staff on their insurance plan. We met with our CFP this week and, while my wife has been fretting for a while, I was not too concerned until now. We are at the edge of "rich" per our administration's definition, i.e. less than $250k but over $100k, which means we expect to make about the same and yet pay about 20-25% more on taxes (state, federal, local) while college etc. costs continue to rise (college cost for our older son has risen ~30% in the past three years, and we have one more starting next year as our eldest graduates; we expect to pay about $3500 more in medical next year if we are lucky; at this point retirement is a pipe dream). Then I get to listen to folk complain about greedy rich after we've been busting out butts for 3+ decades to get where we are... Glad all those decades of 60 - 80 work weeks are helping somebody, wish it was us! My wife is in the medical field and what is happening there is a little scary. She gets to listen to patients tell her why anybody making over $100k ought to be taxed at 50% so everybody can live the good life.

/rant...
 
My wife is in the medical field and what is happening there is a little scary. She gets to listen to patients tell her why anybody making over $100k ought to be taxed at 50% so everybody can live the good life.
/rant...

When my patients start in on that sh*t I just put their ass to sleep! :rolleyes:
 
Many more layoffs recently announced at many engineering firms. The manager of our local Village Inn is switching FT staff to PT and laying off in anticipation of new heath care costs; they don't have the margins to pay an extra $12k/mo to put all the current staff on their insurance plan. We met with our CFP this week and, while my wife has been fretting for a while, I was not too concerned until now. We are at the edge of "rich" per our administration's definition, i.e. less than $250k but over $100k, which means we expect to make about the same and yet pay about 20-25% more on taxes (state, federal, local) while college etc. costs continue to rise (college cost for our older son has risen ~30% in the past three years, and we have one more starting next year as our eldest graduates; we expect to pay about $3500 more in medical next year if we are lucky; at this point retirement is a pipe dream). Then I get to listen to folk complain about greedy rich after we've been busting out butts for 3+ decades to get where we are... Glad all those decades of 60 - 80 work weeks are helping somebody, wish it was us! My wife is in the medical field and what is happening there is a little scary. She gets to listen to patients tell her why anybody making over $100k ought to be taxed at 50% so everybody can live the good life.

/rant...

You are spot on.

As it turns out, one of my customers owns a number of IHOPS's and is doing the same thing. He needs the number of employee hours so is hiring more people, but changing most full time to part time. As a result, more people will have less income. He said the new healthcare costs would put him out of business if he did not do this.

I started a business 9 years ago and for almost 7 of those years made ZERO (as in nothing). So for all of those years I ate into saving to pay my bills. Now, next year, between my income and that of my wife, and after deductions, we will be close to being considered "rich" so our federal government can penalize me and tax the s**t out of us. In the meantime I have provided incomes to my employees and paid a lot of money to our suppliers. And what assistance did I get from the same government that now want to penalize me (other than the fact that I was allowed to pay no taxes since I had no income)?

NONE. (Oh, I forgot. Our President said I could not have done it without his administration. What a crock !!!!!!!!!!!!!!!!!)

End of rant and I promise not to respond to any posts so that I don't get banned.

But what a crock!!!!!!!!!!!
 
You are spot on.

As it turns out, one of my customers owns a number of IHOPS's and is doing the same thing. He needs the number of employee hours so is hiring more people, but changing most full time to part time. As a result, more people will have less income. He said the new healthcare costs would put him out of business if he did not do this.

I started a business 9 years ago and for almost 7 of those years made ZERO (as in nothing). So for all of those years I ate into saving to pay my bills. Now, next year, between my income and that of my wife, and after deductions, we will be close to being considered "rich" so our federal government can penalize me and tax the s**t out of us. In the meantime I have provided incomes to my employees and paid a lot of money to our suppliers. And what assistance did I get from the same government that now want to penalize me (other than the fact that I was allowed to pay no taxes since I had no income)?

NONE. (Oh, I forgot. Our President said I could not have done it without his administration. What a crock !!!!!!!!!!!!!!!!!)

End of rant and I promise not to respond to any posts so that I don't get banned.

But what a crock!!!!!!!!!!!

I don't see your problem. The only income that will be taxed higher if obama gets his way is marginal income above $250k. If your combined income just hits that threshold you have no increase. Irrespectively, tax rates are at a historical low, and even if they go up, at a top marginal rate of less than 40% they will still be low. If you bust your ass for 7 years and make no money, you have a bad business model. Not Obama's fault. I'm in the same boat as you. My wife runs a small business, which after a few years finally makes money. Combined with my income we are over the threshold and I'm looking at a tax hike. We have 2 cars, a few flat screens, 6 figures worth of consumer electronics in my man cave, and 6000 square feet of living space. I count my blessings every day.....
 
I don't see your problem. The only income that will be taxed higher if obama gets his way is marginal income above $250k. If your combined income just hits that threshold you have no increase. Irrespectively, tax rates are at a historical low, and even if they go up, at a top marginal rate of less than 40% they will still be low. .... I'm in the same boat as you. My wife runs a small business, which after a few years finally makes money. Combined with my income we are over the threshold and I'm looking at a tax hike. We have 2 cars, a few flat screens, 6 figures worth of consumer electronics in my man cave, and 6000 square feet of living space. I count my blessings every day.....

Agreed. Tax increase is only for income above 250k, anything up to that stays the same. This has been made clear many, many times. And all the good old times people refer to, let's go back to the way things were --- tax rates were higher across the board.

Realize small business is different, but big companies for years -- well before Obamacare was even 'threatened' -- have been PTing works to avoid paying healthcare. In my business, entertainment, all the big media companies increase their proportion of freelance workers every year to avoid paying benefits -- this in an era of record corporate profits for them (and this is true of many industries).

Money taken from the system by the so-called freeloaders is dwarfed by corporate profits that is never reinvested and often derived from cutting workers. Seems to me the finger is often pointed at the wrong place.
 
1. It is $200k for singles, $250k for married/joint. That is still one-fifth to one-quarter of the "millionaire" level that the politicos seem to bandy about when talking about soaking the rich.

2. Depending on who you talk to or what article or version of which bill you read, the top two rates will go up, not just the very top bracket, trickling down into the $120k - $150k range. I am no tax expert so don't ask me for more info, just passing on what I have read. IIRC, 28% --> 35%'ish and 35% --> 40%'ish. I have given up trying to explain how a 7% increase in rates translates to a 35/28 = 1.25 = 25% increase in the actual amount of tax I'll pay on income in that bracket; they insist it's only 7% no matter what examples I provide.

I am meeting with our CPA next week (and that is a statement I never imagined I'd be making!) to get his take on what we should do. I am not going to enter the policitcal argument, it's another of those no-win scenarios, but it's been a rough couple of weeks and I popped off when I should not have.
 

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