The unemployment rate may not drop to the magic 6.5 percent level for more than five years, according to analyses by both Morgan Stanley and CNBC.
That’s the rate at which the Federal Reserve plans to lift its federal funds rate target from the zero-to-0.25-percent range. The jobless rate was 7.8 percent in December.
Morgan Stanley Chief U.S. Economist David Greenlaw determined that if the labor force participation rate remains at December’s 63.6 percent level and the economy adds 150,000 jobs a month, unemployment would hit 6.5 percent in about 6 ½ years, CNBC reports.
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
The date could be sooner if the participation rate drops further, at the same level of monthly jobs gains. But if the participation rate rises, then the arrival of the 6.5 percent unemployment rate would be pushed out further.
Meanwhile, the network looked at the Fed’s estimates of how big a decline in joblessness comes from various growth rates in the economy.
For example, the central bank estimates that with gross domestic product growth of 2.25 to 2.75 percent a year, the unemployment rate falls 0.2 percentage point a year. An economic expansion in that range would thus bring the jobless rate down to 6.5 percent in 5.8 years.
Some economists are optimistic in light of the 155,000 jobs gain last month.
“Despite concerns about the fiscal cliff, businesses were running so tight on labor that even a modest increase in demand forced them to hire,” Russell Price, senior economist at Ameriprise Financial, tells Bloomberg.
“As long as Washington is able to resolve many of the issues that remain on the table, the economy should get much stronger.”
Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible
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