Unemployment Expected to Remain High for Three Years, say Feds

The U.S. Federal Reserve has announced its projection that the national unemployment rate will remain elevated until the end of 2015 signaling continuing low interest rates for the short-term. With the unemployment rate at 7.7 percent in November, The Fed expects economic growth to improve next year but not to become strong enough to spur widespread employment growth. Growth is expected to increase to 3 percent in 2013, 3.5 percent in 2014, and 3.7 percent in 2015.

The unemployment rate is expected to fall no lower than 7.4 percent in 2013 and no lower than 6.8 percent in 2014. The unemployment rate is not expected to drop below 6.5 percent until the end of 2015. Inflation is also expected to stay at a rate no higher than 2 percent until the end of 2015.

The upcoming “fiscal cliff,” tax increases and spending cuts that will automatically kick in in January should Congress be unable to reach a budget compromise, was ignored in the analysis; therefore, the predicted growth is assumed a budget deal will be reached to avoid the cliff. The Fed has cautioned that it lacks the ability to offset the inevitable damage the economy would take should it go over the cliff. Also, fear of the impending crisis has yet to slow hiring with employers adding 146,000 jobs in November, nearly the same as in 2011.

The economy grew at an annual rate of 2.7 percent during Q3 2012 but growing worries over the fiscal cliff are contributing to slowed growth in Q4 with growth falling to a sluggish, sub-2 percent rate.