Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Is the Fed Too Bearish on Unemployment?


The Federal Reserve may have too bearish an outlook on unemployment.

As the pseudonymous blogger DutchBook points out at the Stone Street Advisors blog, the Fed shifted its predictions for unemployment to a far more bearish stance in the beginning of 2011. Now, however, it looks like this was just a temporary uptick in unemployment.

Here are the charts that show that the Fed has been consistently overestimating unemployment for a few months now. 

In the first, you can see how the Fed's economic projections underestimated unemployment in 2011.

Then the Fed revised its views, and almost immediately began overestimating unemployment.

Jobs numbers are coming in hotter than expected. Consumer creditkeeps blowing away expectations.

“With a breakeven rate of unemployment around 400k on claims, as I have been advocating on Twitter, this disconnect looks to be further exacerbated in coming months,” Dutchbook writes.

The Fed getting unemployment expectations wrong can have serious consequences. It could result in the Fed easing too much for too long, for example.

On the other hand, the Fed sees this kind of data even before the markets. So perhaps it is already revising its expectations. This might be another nail in the coffin of QE3.

Follow .  (Market and financial news, adventures in New York City, plus whatever is on his mind.)  You can email him at

We also have two NetNet Twitter feeds. Follow for the best of the day's posts, including breaking news. Follow for a feed of every single post each day.

You can also be . Or page.

We're on Google Plus too! Click here and add NetNet to your circles. And .

Questions? Comments? Tips? Email us ator send a text message to: 9170740-8477.

Call us at 201-735-4638.