News Column

Forecasts: Cohen Column

Jan. 8, 2013

Isaac Cohen -- HispanicBusiness

This year, forecasting U.S. economic performance has been made easier because of a set of decisions announced on Dec. 12 at the conclusion of the last meeting of the Open Market Committee of the Federal Reserve.

Since the Great Recession, the central bank has kept interest rates near zero and pledged to keep them there during a specified time period, until mid 2015. The decisions announced on Dec. 12 modify the pledge, stating that interest rates will be kept near zero until two quantitative indicators reach a certain level.

Based on the dual mandate of seeking maximum employment with price stability, the Federal Reserve pledged that such exceptionally low interest rates, close to zero, will be maintained as long as unemployment remains above 6.5 percent and projected inflation remains under 2.5 percent. Therefore, these two indicators specify henceforward the direction of monetary policy.

The projections for 2013, also released at the conclusion of the last Open Market Committee meeting, expect the U.S. economy will grow within the range of 2.3 and 3.0 percent, with inflation remaining subdued in the range of 1.3 to 2 percent and unemployment between 7.4 and 7.7 percent.

In other terms, the central bank projects that in 2013 the economy will continue expanding at a moderate pace, with elevated unemployment and low inflation. This projection assumes the avoidance of drastic cuts in federal public spending, which would certainly endanger the modest recovery.

Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.


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