Fed Says: More Hurdles Ahead in Economic Recovery

Not only are we dealing with the uncertainty in Greece and the rest of Europe, but also the economic conditions in the United States appear to be worsening. From housing to jobs, to manufacturing and consumer spending, the signs are everywhere that the U.S. economy is stalling.

There was more bad news in jobs after the weekly initial jobs reading jumped to 429,000, above the previous week and the estimate. This is not good news and, if it continues, could force the Fed to think about additional stimulus to drive the stalling economic renewal.

But the Federal Reserve appears to be holding back. At the FOMC meeting on Wednesday, the Fed expressed caution and suggested that economic hardships may extend into 2012. The Fed also cut its growth forecasts for 2011 and 2012, which is a red flag, but not a surprise.

I was disappointed that nothing was mentioned about any stimulus after the end of QE2 on June 30. The Fed appears to be satisfied with the reduced interest rates as the key driver of economic renewal. Yet, with the continued soft housing market where foreclosures and short sales are driving prices across the country lower, along with the high unemployment at 9.1%, more must be done. The problem is the country’s massive deficit of over a trillion dollars and national debt in excess of $14.0 trillion, which makes it difficult for additional fiscal spending.

My concern is that the economy may falter or we could continue to see a flat-line renewal. There is also the potential of stagflation, where there are higher prices and slower growth.

It’s true that the housing market is improved from a year ago, but there continue to be problems. The S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines and my economic analysis tell us that this is not good.

I remain bearish on the housing market in 2011 and into 2012.

Fed Chairman Ben Bernanke acknowledged the weak housing market as a major hurdle to overcome. And overcoming it may take years.

Where I continue to see cause for concern is the jobs market. After generating an average of over 200,000 jobs from February to April, May produced only 54,000 jobs.

Thinks about it—there are currently about 13.9 million unemployed Americans, but only less than three million available jobs. This equation will not work. The number of long-term unemployed (those unemployed for 27 weeks and longer) is an astounding 6.2 million, according to the Labor Department. The problem is that, without jobs, spending will stall.

Ben Bernanke has a lot of work ahead of him and the situation is a lot worse than he probably thought. Over two years into President Obama’s term and there continue to be major issues.

The Fed has warned us. The stock markets will likely stall in the summer months with little catalyst for fresh buying. We can only hope that things will improve in the fourth quarter and into 2012; otherwise, making money will become that much more difficult.

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