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Tuesday, October 20, 2009

FRBSF: The Economic Outlook

Glenn Rudebusch of the SF Fed:

Five key questions are often asked about current economic and financial conditions: Has the financial crisis ended? Is the recession over? Will the economy return to full employment and normal conditions anytime soon? Is inflation going to jump too high? Does the Federal Reserve have an "exit strategy" to undo its extraordinary policy actions of the past two years? The answers, respectively, are: Mostly, Almost certainly, No, No, and Yes.

 Gap

He also notes the poor outlook for jobs:

Although growth has returned, the economy will remain in a deep hole with high unemployment and underutilized productive resources for some time. So, even though the recession is over, production, income, sales, and employment will persist at subpar levels. A large amount of unemployed or underutilized labor and capital remains in the economy, and it will take a sustained period of growth for the economy to return to its normal or potential level.

And, unless something is done about it (hint, hint), the problems are likely to persist for a considerable time period:

A rough benchmark for calibrating the stance of monetary policy explains the level of the funds rate in terms of inflation and unemployment. Currently, this simple rule of thumb, which has captured the broad contours of policy over the past two decades, suggests that the funds rate will be near its zero lower bound for several years.

More here.

    Posted by on Tuesday, October 20, 2009 at 01:42 AM in Economics | Permalink  TrackBack (0)  Comments (12)

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