Projections in need of a response

PROJECTIONS IN NEED OF A RESPONSE…. About six months ago, the Fed made economic projections for the next couple of years. The Fed’s board of governors and its regional bank presidents now have new projections, and they’re slightly worse.

Unemployment is set to remain higher for longer than previously thought, according to new projections from the Federal Reserve that would mean more than 10 million Americans remain jobless through the 2012 elections – even as a separate report shows corporate profits reaching their highest levels ever.

Top Federal Reserve officials project that the unemployment rate, now 9.6 percent, will fall only to about 9 percent at the end of 2011 and about 8 percent when the next presidential election arrives, in late 2012. The central bankers had envisioned a more rapid decline in joblessness in their previous forecasts, prepared in June.

Economic news isn’t all bad. Third quarter GDP was revised upwards; corporate profits certainly aren’t a problem; and Neil Irwin’s report added that there have been “solid readings in recent weeks on job creation, manufacturing and retail.”

But the Fed’s top policymakers nevertheless expect economic growth next year in the 3% to 3.6% range, which would relatively acceptable under normal circumstances, but which is wholly inadequate when trying to bounce back from a brutal recession. If these projections prove to be accurate, unemployment will be in the 8.9% to 9.1% by the end of 2011, and in the 7.7% to 8.2% range at the end of 2012.

And if the Fed’s projections turn out to be a little too optimistic, as they were in June, these figures will end up being worse.

That said, it’s the political response to all of this that leaves me shaking my head — which is to say, there isn’t a political response.

A discouraging report like this should, one would like to think, encourage policymakers in Washington to take steps to improve economic conditions. The Fed is effectively letting D.C. know that if Congress does nothing, we can expect tepid growth and painfully slow job growth for quite a long while.

But at this point, we’d actually be lucky if “nothing” is the worst response from Congress. Remember, congressional Republicans, by their own admission, have no plan to expand economic growth. They don’t even intend to try. Their stated goals in this area include taking money out of the economy through spending cuts, focusing on deficit reduction, cutting off stimulative unemployment benefits, fighting for the same tax rates we already have, and weighing the possibly of sending the United States into default.

Ideally, policymakers would see bleak economic projections and want to try to do something. But we’re so far from the ideal, we can’t see it from here.