So much for ‘baseline’

March 9, 2009 – 19:15:19
February’s 8.1 percent unemployment rate is disturbingly close to the Federal Reserve’s “baseline scenario.” This scenario, it explained, is the “consensus view about the depth and duration of the recession.” Under these expectations, in 2009 unemployment would rise to 8.4 percent. That we hit 8.1 percent two months into the year, and that many indicators suggest the rate has not bottomed out, is good reason for concern. The Fed’s “more adverse” scenario projected an 8.9 percent unemployment rate.

The Fed developed its alternate scenarios last month in connection with “stress tests” for large banks. If unemployment rates hit those numbers, can the banks survive?

Sadly, unemployment may blow past the Fed’s baseline scenario long before it has completed the stress tests. Expect economists to call for an even larger stimulus, and don’t count too heavily on the $250 billion “marker” in President Obama’s proposed budget to be anything like a cap.

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Filed under Banks, Recession

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