Intrade unemployment forecasts question the "adversity" of the bank stress tests
Following the results of the government's bank stress tests announcement yesterday, many analysts today complained that the test was not quite stressful enough. The main gripe was the unemployment figures postulated in the methodology were too rosy a forecast.
The US is currently experiencing 8.5% unemployment. In the ADVERSE Scenario, which 'was designed to characterize a recession that is longer and more severe than the consensus expectation', unemployement would peak at 10.3% or so by 4th quarter of 2010. The BASELINE scenario, which 'reflected the consensus expectation in February 2009 among professional forecasters on the depth and duration of the recession', had unemployment peaking at 8.8% for this cycle.
I thought that it might be interesting to compare these forecasts by the government to what Intrade bettors are forecasting for the US unemployment rate by the end of the year. Today:
About 60% of the community on Intrade expects unemployment to surpass 10% in December 2009. According to this prediction market, the skeptical analysts are right: the government's forecasts are perhaps a bit too optimistic.



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