Fed: Unemployment will top 10%, but economy looks stronger
WASHINGTON -- The Federal Reserve raised its fourth-quarter unemployment forecast to as much as 10.1% and said the jobless rate would be higher than anticipated through 2011 but it also boosted its economic-growth projections, according to a report released Wednesday.
And the central bank reiterated that it expects the recession to end this year.
Noting that unemployment has risen more rapidly than expected in recent months, the Fed said the jobless rate would climb to 9.8% to 10.1% in the fourth quarter, up from the 9.2% to 9.6% projected in April, according to minutes of the Fed's June 23-24 meeting.
The revision came as little surprise to economists, many of whom already have predicted unemployment would hit 10% this year before peaking slightly above that in mid-2010. The jobless rate was 9.5% in June, the Labor Department said this month.
"They had to move it up," says analyst Brian Bethune of IHS Global Insight.
The Fed now projects unemployment will fall to 9.5% to 9.8% late next year and to 8.4% to 8.8% in late 2011—both about 0.5% higher than its April forecast.
At the same time, the Fed said the economy will be stronger in the fourth quarter and in 2010 than it previously expected. The central bank expects the economy to contract 1% to 1.5% this year, better than its April forecast of 1.3% to 2%. And it should grow 2.1% to 3.3% in 2010, the Fed said, slightly better than it previously forecast.
The Fed cited a litany of factors for its improved outlook, including more stable consumer spending, the bottoming of home sales, higher household wealth and falling corporate bond rates. The more vibrant economy should help lower unemployment "significantly" by 2011 and 2012, the Fed said.
The more vibrant growth forecast prompted the Fed to modestly increase its inflation forecast to about 1.2% this year and 1.5% in 2010, though that's still well below historical levels.
"It's good news," says John Ryding of RDQ Economics. "Three, four months ago, it wasn't' clear that there was bottom in sight and now the debate has switched to what kind of recovery we're going to have."
