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Fed Downgrades Projections For U.S. Economic Growth

Braden Holly |
June 22, 2011 | 5:07 p.m. PDT

Assistant News Editor

Federal Reserve Chairman Ben Bernanke announced Wednesday that the U.S. economic recovery had failed to meet projected growth rates and downgraded projections for the future.

“The pace of progress remains frustratingly slow,” said Bernanke.

There is, however, some good news.  Though projected growth rates have been dropped, the projections do still say “growth”, which would indicate that the likelihood of the much feared double-dip recession is slim.

While slower improvement is better than none, it may be little consolation to those who remain unemployed.

According to the Wall Street Journal:

The economy is now expected to expand at a rate of around 2.7% to 2.9% this year and 3.3% to 3.7% in 2012. That is below estimates given after the last meeting in April for growth of 3.1% to 3.3% in 2011 and 3.5% to 4.2% next year.

“The unemployment rate is expected to decline to 8.6% to 8.9% in 2011 and 7.8% to 8.2% next year, versus previous expectations for a drop to 8.4% to 8.7% and then 7.6% to 7.9% in 2012.

No single reason can be pinpointed as the cause of the slower-than-projected growth rates, but a number of theories exist, and the truth is likely a combination of many of them.

Among the factors that are likely holding our economic recovery back are unstable costs of energy and commodities, instability in the Middle East following the Arab Spring and the disruption of foreign economies.

The tsunami in Japan and the resulting damage to the infrastructure there disrupted supply lines and trade between Japan and the U.S., which may have played a part in the reducing U.S. economic growth.

Skittish investors may also play a part.  The U.S. stock market dipped following unrest in Athens as Greek citizens protested austerity measures meant to aid in Greece's economic recovery.

While investors are understandably wary, sometimes it may be without due cause.

Bloomberg reported: 

“Federal Reserve Chairman Ben S. Bernanke said a default by Greece would have little impact on U.S. banks, which aren’t “significantly exposed” to European nations struggling to meet debt payments.”

 And the nervous nature of investors was once again on display as stocks fluctuated following Bernanke’s speech.

For the moment, the Fed seems to be sticking to current plans and taking a wait-and-see approach to the slow improvement of the economy, believing that growth will pick up the next several years.

“This committee expects that the pace of economic recovery will pick up over coming quarters,” said Bernanke.


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