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Fed (correctly) lowers expectations on jobs

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Pablo Martinez Monsivais/AP

(Read caption) Federal Reserve Chairman Ben Bernanke gathers his notes at the conclusion of his news conference on the Federal Open Market committee (FOMC) policy decision in Washington. The Fed has announced a worse unemployment forecast than previously predicted.

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The Fed just did what a lot of forecasters have done already: lowered its economic forecast for the US economy over the next couple of years.  Back in June, they thought the 2012 jobless rate would be about 8%.  Now they’re thinking about 8.5%.

I suspect the Fed will get some criticism for trotting out a worse forecast without announcing that they planned to do anything more about it.  That’s a fair critique—they should do more (and kudos to Fed governor Charles Evans for dissenting on behalf of that point—his is the first Fed dissent on behalf of doing more for growth since 2007).

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But I also think Fed chair Bernanke has a good point:

“I think it would be helpful if we could get assistance from other parts of the government to help create more jobs.”

As per the NYT, Bernanke “drew a contrast between the Fed’s actions and the performance of Congress and the president in addressing the nation’s unemployment crisis.”

Evans is right, but at least Ben’s doing something, and getting results in terms of keeping interest rates low.  But as I’ve argued before, I think sequencing matters here.   Consumers and investors won’t respond to low rates absent more demand from the fiscal side.  To get some traction on monetary policy, Congress needs to pass some new fiscal policy.