Fed Projects High Unemployment Into 2015 in Sign Rates Will Remain Low

Wednesday, 20 Mar 2013 02:04 PM

 

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The Federal Reserve foresees unemployment remaining high into 2015, suggesting it will keep short-term interest rates near record lows at least until then.

In its latest economic forecasts released Wednesday, the Fed predicts that the unemployment rate will stay above 6.5 percent for about two more years. Fed policymakers also expect the economy to grow modestly this year and next despite economic gains so far in 2013.

The Fed's updated forecasts are nearly identical to projections it made in December. The Fed has said it plans to keep its benchmark rate near zero as long as unemployment exceeds 6.5 percent and the inflation outlook is tame.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

The policymakers expect the economy to grow as little as 2.3 percent this year — not enough to quickly drive down unemployment — or as high as 2.8 percent. In 2014, growth could range from 2.9 percent to 3.4 percent in 2014, they predict.

The Fed has slightly upgraded its outlook for unemployment. It now sees the rate falling to between 7.3 percent and 7.5 percent by the end of this year. That's down from a previous range of 7.4 percent to 7.7 percent.

The rate fell to 7.7 percent in February, the lowest in four years.

By the end of 2014, the Fed expects the rate to fall between 6.7 percent and 7 percent. That's a narrower range than in December, when it forecast a range of 6.8 percent to 7.3 percent.

Speaking at a news conference, Chairman Ben Bernanke stressed that while the economy has improved, the Fed won't ease its aggressive stimulus policies until it's convinced the economic gains can be sustained. An unemployment rate of 6.5 percent is a threshold, not a "trigger," for a possible rate increase, he said.

Bernanke also said the Fed might vary the size of its monthly bond purchases depending on whether or how much the job market improves. The unemployment rate has fallen to a four-year low of 7.7 percent, among many signs of a healthier economy.

"We are seeing improvement," Bernanke said. "One thing we would need is to see this is not temporary improvement."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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