The Fed's Forecast

A few weeks back, we talked about the two-day meeting of the Federal Reserve Board, when they hashed out what further action was needed to right the economy. The minutes of that meeting were released this week, and the big news to come out is that the Fed forecasts unemployment to hit 10 percent before it starts to wind down again.

That's not too much of a surprise - it's already at 9.5 percent, after all. And there was concordant good news in those minutes: the Fed expects that "the decline in [economic] activity could cease before long," and that GDP should decline by between 1 percent and 1.5 percent overall in 2009, compared to an earlier forecast of a drop of between 1.3 percent to 2 percent.

That's small comfort, of course, to people who are still going to lose their jobs to this recession. Looking back to the 1981-82 recession, we see that unemployment didn't start to ease until well after the recession had officially ended. At that time, the economy began growing again in November 1982, which is also when unemployment peaked, at 10.8 percent. It remained at 10.8 percent through December, and stayed over 10 percent as late as June 1983. A similar outcome now could mean that even if the recession is coming to an end in the very near future, unemployment could remain a serious problem into 2010.