Not wanting to say that things look worse, the Fed is suggesting that the recovery is less than expected.
“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected”, according to last week’s Fed statement.
What’s causing the recovery to progress “more slowly”? No answer. The Fed “doesn’t have a precise read on why this slower pace of growth is persisting”.
Precise read or not, the current slow pace is going to persist for a while. Once again, the Fed lowered its projections for growth, and increased its projections for the unemployment rate.
The bottom line: clouds continue to gather over the economic outlook. And the clouds are evident in a few highlights from Fed Chairman Ben Bernanke’s press conference last week:
“We expect the unemployment rate to continue to decline; but the pace of progress remains frustratingly slow”.
“It takes growth faster than potential to bring down unemployment. And since we’re not getting that, we project unemployment to come down very painfully slow”.
“The committee still believes that the output gap is quite large”.
“…temporary factors are in part the reason for the slowdown. On other words, part of the slowdown is temporary, and part of it may be longer lasting”.
“…some of the headwinds that have been concerning us…weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, some of these headwinds may be stronger and more persistent than we thought”.
The Fed is telling us that the outlook is not that bad…it’s just not that good, either. But the problem is that the Fed is more optimistic than most economists, so less is as good as it gets.