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Fed Downgrades Recovery Expectations While Congress Enters Gridlock Mode

November 24, 2010 - by Donny Shaw

The Federal Reserve has lowered the expectations for economic growth and is not expecting any significant change in the unemployment rate for the next couple of years:

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.

Amazingly, there is no congressional response to the extended unemployment crisis in the works, and in fact it looks as if Congress is on the verge of ending what limited unemployment assistance they have in place currently.

On November 30th, insurance benefits for the long-terms unemployed will expire because of congressional gridlock, and even if Congress does eventually find a way to extend them, it will probably be for only three months. That would keep the program alive just until the Republicans, who have routinely tried to block the Democrats from extending benefits in the past, will be in control of the House and yield more influence in the Senate.

As the Fed projections reconfirm, the job market is in a long-term contraction (4+ years above 8% unemployment), which means that millions of people are being squeezed out the workforce with no chance of being reabsorbed. Based on the facts, one might expect Congress to be looking at something like S.3706, which would let unemployed people collect insurance benefits for a longer period, or some other approach to help the people who are most in need. But they’re not, and homelessness, hunger and suicide rates across the country are rising as a result.

Most of the commentary today on the new Fed projections is about what the unemployment crisis means for Obama’s re-election chances in 2012. But, the fact is, Obama, Congress and most of the people writing about the politics of this will be fine. Let’s consider what this means for the people who are suffering and start getting serious about a national response.

Photo by iheartfishtown used under a CC license.

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