The good news is that the Federal Reserve is not calling for a recession and it still is calling for growth ahead.  While we noted even last week that there were 10 indicators signaling that the U.S. seems to have missed the double dip recession, there is some bad news… The new FOMC long-term forecasts are edging lower and the technical call for “no recession” is still going to feel like a recession in many cases.  Today’s new long-term forecasts have been altered for lower GDP growth, a much slower recovery in employment, and it has been adjusted to account for inflation.

For 2011, GDP has been lowered to 1.6% to 1.7% from a prior 2.7% to 2.9% target.  For 2012, GDP has been lowered to 2.5% to 2.9% growth rather than a prior target of 3.3% to 3.7%.  The GDP target is now for 3.0% to 3.5% growth in the year 2013, followed by 3.0% to 3.9% growth in 2014.  Maybe the FOMC has a crystal ball showing the future tax structure, business climate, credit ratings, and election(s) outcome.

Unemployment is where things are going to still feel like a recession if the Fed has suddenly become a trustworthy forecaster.  The 2011 unemployment rate is now put at 9.0% to 9.1% from a previous range of 8.6% to 8.9%.  You know that hurts forward targets as well.  The 2012 unemployment rate is now put in a range of 8.5% to 8.7% versus a prior targeted forecast of 7.8% to 8.2%.  Sadly, that means even the new best case scenario is for worse unemployment than its prior worst case.  Ouch.  The Fed sees unemployment falling to 6.8% to 7.7% in the year 2014. 

Inflation targets have been adjusted as well.  For 2011: headline inflation is now expected at 2.7% to 2.9% from a prior 2.3% to 2.5% forecast, and the “Core” inflation target is raised to a range of 1.8% to 1.9% from a prior 1.5% to 1.8% forecast.  For 2012, the headline inflation was put at 1.4% to 2.0% from a prior forecast of 1.5% to 2.0% range. The core inflation for 2012 has been narrowed to a forecast range of 1.5% to 2.0% versus a prior 1.4% to 2.0%.

What is sad, regardless of who tells you what regarding a recession, is that the recovery in 2011 already became long in the tooth that has faced more interruptions and hurdles than most of us would have hoped for.  It still feels like a recession to many.  The forecast remaining for interest rates to remain incredibly low through at least mid-2013 should be concerning enough.

These long-term forecasts from the Federal Reserve are not looking for any recession during 2012, 2013, nor in 2014.  How long a no-recession outlook can be maintained in such meager growth and in such troubling times is anyone’s guess.  What history has dictated is that another recession will come at some point.  History has also shown that the Federal Reserve (and most economists in the market) are not able to accurately forecast events the farther and farther out on the calendar these are.

After all that, is it fair to ask how good everything feels out there?  Learning to love the new normal…

JON C. OGG

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