Yellen’s Economic Forecast

image provide by The New York Times
image provide by The New York Times

The Fed’s own forecasts project that the unemployment rate will bottom out and inflation will pick up by the end of 2016, marking the first time in nearly a decade that the economy is running close to full steam.

Yellen said the nation’s 6.7 percent jobless rate remains significantly above what the Fed considers a normal level — and that statistic may be understating the depth of the problem. As in previous speeches, Yellen pointed to the high number of long-term unemployed and people working part-time for economic reasons as additional signs of weakness in the labor market.

She noted that long-term price expectations are stable around the Fed’s target but also stepped up her assurances that the central bank would guard against deflation.

[Yellen stated,]“As the recovery proceeds and healing occurs, it’s obvious that we will need to tighten monetary policy to ensure that we avoid overshooting our target… Overshooting that goal we’ve learned in past episodes and past recoveries can be very costly to reverse. That’s something we don’t want to happen.”

My opinion: I am enjoying the cautious optimism of the Fed right now.  No one does a better job at giving you a thumbs up while at the same time telling you to not get too excited.

To follow what was said in the article, I too am worried about the long-term effects of so many long-term, unemployed people.  It makes you wonder if those individuals will forever be discouraged and thus out of the labor force.  If so, how will that affect the tax base and social programs in the future?

Instead of waiting until 2016 to start addressing the discouraged workers situation, I think it would be prudent to enact some state specific work programs.  For instance, a program that allows people who have been unemployed for 27 weeks or longer to obtain a free job training program.  Completion of this program could also be tied to an unemployment benefits extension as well.

I hate getting behind the gun on things so I think it makes sense for our government to start planning on programs that will help individuals in the foreseeable future.

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