The Fed's bleaker jobs forecast: What's changed?

The Federal Reserve is less optimistic about the economy and jobs than it was in April. Commentators offer 3 theories on what's different now

The Fed's new outlook for the economy is decidedly gloomier.
(Image credit: Corbis)

The Federal Reserve is less upbeat about the economy and job market than it was in April. The minutes from the Fed's June 22-23 meeting, released Wednesday, project that unemployment levels will remain slightly higher than projected and that the GDP will grow a bit slower. What's behind the Fed's gloomier outlook? Three theories: (Watch a Bloomberg discussion about prior economic outlooks)

1. Blame Europe

In most ways, the Fed's June analysis actually wasn't too different from its April one, says Carl Gutierrez in Forbes. But issues in Europe, specifically the Greek-fueled sovereign debt crisis that "flared up" in between the two most recent meetings, has made financial conditions "less supportive of economic growth on balance."

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2. Blame tight-fisted shoppers

Consumer spending, which accounts for 70 percent of U.S. economic activity, grew at a zippy pace in the first three months of 2010 — and then slumped after the Fed's April meeting, as shoppers grew concerned about high unemployment, the roller-coaster stock market, and the depressed housing market. "Clearly, the consumer is being more cautious now," says Standard & Poor's chief economist David Wyss. The good news, he adds, is that consumers with jobs are finding great bargains.

3. Blame the tight-fisted Fed

The Fed's analysis and response is "totally baffling," says Matthew Yglesias in Think Progress. Inflation is below their target rate, and falling, and economic growth and employment are weaker — yet they've "decided that the appropriate response is... nothing." That's "crazy." They should be "printing money and dropping it from helicopters," and telling people they're trying to raise prices to the target inflation rate, because that's how you "make monetary stimulus work."

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