Federal Reserve Bank Projects Unemployment

Dec 10, 2013

The nation's unemployment rate could fall below 7 percent nationally in under two years, according to an economic forecast developed in Cleveland. This also means interest rates will likely stay low for a while.

The forecast comes from Edward Knotek and his colleague Saeed Zaman, both of the Federal Reserve Bank in Cleveland.  They project that the national unemployment rate will fall below 6-point-5 percent in the third quarter of 2015, and inflation will be no higher than 2-point-5 percent for the same period.  But Knotek points out those numbers could be influenced up or down by any number of economic factors.

“I think that last Friday’s employment report is one potential example of that.  Our model is relatively simple.  The forecast was made before the unemployment report came out.  So with that new data point, that may have shifted things down a little bit, in terms of the trajectory we were focusing on, forecasting, for unemployment.”

The Federal Open Market Committee sets US interest rates based on unemployment and inflation projections, so little change in either means interest rates will likely hold steady. 

Knotek says the many economic models used present a variety of possible outcomes, and their final projection is the average of all of those.  He says there’s a roughly 50 percent chance of either unemployment or inflation hitting – or both – hitting their projected thresholds earlier in 2015.