New York Fed Sees Joblessness at 6.5% Threshold by Late 2014

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Photographer: David Paul Morris/Bloomberg

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Federal Reserve Bank of New York researchers forecast the U.S. unemployment rate will decline in the fourth quarter of 2014 to the central bank’s threshold for considering an increase in the benchmark interest rate.

The staff sees the unemployment rate falling to 6.5 percent at the end of next year, faster than most Fed policy makers did when they published their March forecasts. In those forecasts, released March 20, central bankers saw unemployment of 6.7 percent to 7 percent at the end of 2014, according to their so-called central tendency forecasts, which omit the highest and lowest estimates.

Economic growth will accelerate to 3.25 percent next year from 2.5 percent in 2013, New York Fed economists Jonathan McCarthy and Richard Peach wrote today in the regional bank’s Liberty Street Economics blog.

“As stronger growth is anticipated for 2014, we project a more substantial decline in unemployment,” they wrote.

The Federal Open Market Committee in December specified 6.5 percent as the level for the jobless rate that would prompt consideration of raising the Fed’s target rate, which has been near zero since December 2008. Prior to specifying the unemployment threshold, the FOMC said the rate would be near zero through mid-2015.

The New York Fed’s staff produces research and forecasts that help inform the views of the regional bank’s president, William C. Dudley, who is a permanent voting member of the FOMC and serves as the panel’s vice chairman.

Consensus Forecasts

The blog said the forecast also foresees lower unemployment than the consensus private sector economists. Economists in a Bloomberg survey, for example, see unemployment of 6.9 percent in the fourth quarter of 2014.

The discrepancy “probably reflects our expectation of more receding of the headwinds and greater improvement in fundamentals than in the consensus forecast of the surveys,” McCarthy and Peach wrote.

Growth is likely to pick up next year due to “a smaller fiscal drag, an expected further lessening of other headwinds -- for example, the European sovereign debt crisis and the deleveraging of household balance sheets -- and further improvement in labor-market and financial conditions,” they wrote.

Inflation will continue to slow this year before accelerated again toward the Fed’s 2 percent goal in 2014, they forecast.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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