The Federal Reserve expects that as many as 15 million Americans will remain unemployed by year-end even as the economy continues recovering from the impact of the coronavirus. That assessment is more pessimistic than the Trump administration’s sunnier forecast.
In releasing their latest policy statement and economic projections on Wednesday, Fed officials predicted that the nation’s jobless rate will drop from 13.3% to 9% this year, which would be near the peak during the Great Recession.
Just under 6 million Americans were unemployed as of January, before the pandemic crippled the economy. In April, that number soared to 23 million before receding to 21 million last month.
Earlier in the day, Treasury Secretary Steven Mnuchin said the U.S. is well on its way to a “strong” reopening of the economy. “We remain confident that the overall economy will continue to improve dramatically in the third and fourth quarters,” he said in a congressional hearing.
Speaking at a virtual news conference following the Fed’s announcement that it will keep its key interest rates near zero, Chair Jerome Powell suggested it is premature to tout the recovery. While calling the May drop in U.S. unemployment the “biggest data surprise anyone can remember,” the Fed is “not going to overreact to a single data point,” he said.
Powell also made clear that the Fed would keep providing support by buying bonds to maintain low borrowing rates. The central bank’s own forecast is for no rate hike through 2022. Stressing the Fed’s commitment to ultra-low borrowing rates for the foreseeable future, Powell said, “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.”
Stock prices initially rallied modestly after the Fed statement, but by the end of the day a number of market averages were back into negative territory. The S&P fell by a half a percentage point.
The Fed’s latest economic projections “highlight what a long slog the recovery will be, with labor market slack persisting at least through end-2022,” said Steven Friedman, senior macroeconomist at investment adviser MacKay Shields, in a report.
The Associated Press contributed to this report.