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I’ve updated my economic forecast, and it’s not as favorable as last quarter’s projection. I continue to see upward pressure on the economy this quarter and next from the lagged impacts of the Federal Reserve’s second round of quantitative easing. However, I’ve offset most of that with a hit to exports and attitudes from the European financial crisis. The result is a very boring forecast.
This continues our pace far below our potential. Using the CBO’s estimate of Potential GDP, we’re more than four percent below where we should be at the end of 2013. Unemployment will fall to around 6.5% by end of next year; an improvement for sure, but not nearly good enough for people to feel happy.
Policy response? I see not much change for fiscal or monetary policy. (That’s my forecast, not my recommendation.)
The election’s effect on the economy? I’m assuming that Ron Paul will not be our next president (Again, that’s a forecast, not a recommendation.) So we’ll have a president who fundamentally believes in an activist government, but who is constrained by political gridlock in Congress.
Interest rates will continue low through the forecast horizon, though long-term rates will gradually edge up as the world economy improves. The Fed will keep short-term rates very low.
Inflation remains muted, given the high unemployment and low factory utilization.
This forecast is so boring that I’m headed to Starbucks for a pick-me-up.
Posted By: DAVID JOHNSON
Thursday, June 14th 2012 at 9:09PM
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