Thursday, September 9, 2010

U.S. Economic Growth Revised Down Again: Fed To Keep Rates At 0.25% Until Mid 2011; Unemployment High Until Late 2011

The latest in the latest Blue Chip Economic Indicators report was just released. Projected U.S. economic growth for the rest of this year as well as next year was revised down for a third month in a row

The report says that weaker outlook stems from lower expectations for consumer spending, business investment and private construction.

"Growth in the current quarter now is expected to be little better than the disappointingly soft advance registered last quarter,"

"For all of 2010, real GDP now is forecast to increase 2.7 percent on a year-to-year basis, 0.2 of a percentage point less than a month ago and 0.6 of a point less than predicted in June,"

"Given the depth of the recession, a forecast of roughly trend growth this year and next amounts to a very disappointing pace of recovery, with little progress expected to be made in lowering the unemployment rate,"

It adds that it expects U.S. unemployment rate will end this year at 9.6% and fall only to 9% by the end of 2011.

On the somewhat positive side (relatively speaking), it forecast that after averaging 554,000 new housing units in 2009, starts this year will rise to 600,000 and to 760,000 units in 2011.

"Although residential investment appears destined to subtract from GDP in the second half of this year, double digit growth is expected by early 2011, with rates of growth over 30 percent by the second half,"

It also expects short-term interest rates to remain very low before starting to rise next summer. The Federal Reserve likely will keep the federal funds rate at its current range of zero to 0.25 percent through mid-2011, finally raising it to 0.75 percent by the end of 2011.

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