Federal Reserve officials reduced their forecast for unemployment after payroll gains averaged more than 200,000 a month during the first quarter, while policy makers affirmed a plan to keep the benchmark lending rate around zero at least through late 2014.
Officials forecast the unemployment rate would average 7.8 percent to 8 percent in the final three months of this year versus a forecast of 8.2 percent to 8.5 percent in January, according to central tendency estimates. The new forecasts are still far above policy makers’ estimates for full employment, which range from 4.9 percent to 6 percent.
Unemployment is forecast at 7.3 percent to 7.7 percent next year and 6.7 percent to 7.4 percent in 2014. The gradual return of the jobless rate to a level Fed officials view as being in line with full employment may explain why the Federal Open Market Committee today restated its plan to pursue a zero-interest-rate policy for another two-and-a-half years.
Seven of 17 Fed officials expect borrowing costs to remain below 1 percent at the end of 2014, compared with nine in January, while 10 expected rates to be 1 percent or higher, versus eight in January. The Fed has kept the benchmark lending rate close to zero since December 2008.
The Fed released the expectations of the five Fed board members and 12 district bank presidents after the FOMC today said it expects “economic growth to remain moderate over coming quarters and then to pick up gradually.”
Ten officials vote on the policy statement, while the interest-rate and economic projections reflect the views of all 17 Fed officials. The so-called central tendency economic forecasts exclude the three highest and three lowest projections.
Prices as measured by the personal consumption expenditures price index are seen rising 1.9 percent to 2 percent this year, versus a gain of 1.4 percent to 1.8 percent in January. A 17 percent increase in the cost of unleaded gasoline, according to data tracked by AAA, has pushed price measures higher this year. U.S. central bankers have defined their inflation target as 2 percent a year.
Recent economic reports indicate that consumer spending and services are gaining strength as manufacturing cools.
Bookings for goods meant to last at least three years dropped 4.2 percent, more than forecast and the biggest decrease since January 2009, data from the Commerce Department showed today. Sales of non-military capital equipment excluding planes climbed for a second month.
Retail sales in March rose more than forecast, and the Bloomberg Consumer Comfort Index in the week ended April 15 matched the highest level in four years.
A slowing labor market may limit further gains in household demand. Payroll growth slowed in March to 120,000 jobs, the smallest gain in five months. The unemployment rate fell to 8.2 percent from 8.3 percent as people left the labor force.
Fed officials estimated the economy will expand 2.4 percent to 2.9 percent this year, compared with a January forecast of 2.2 percent to 2.7 percent. They see growth of 2.7 percent to 3.1 percent in 2013 and 3.1 percent to 3.6 percent in 2014.