Federal Reserve officials said economic growth will improve faster than they had earlier projected as they embarked on a third round of asset purchases aimed at spurring the expansion.
Federal Open Market Committee participants upgraded their estimate for 2013 gross domestic product growth to 2.5 percent to 3 percent, compared with 2.2 percent to 2.8 percent in June. Estimates for 2014 are from 3 percent to 3.8 percent, versus 3 percent to 3.5 percent in the previous forecast, according to the central tendency forecasts, which exclude the three highest and three lowest of 19 projections.
The Federal Open Market Committee said today the Fed will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. Economic growth has been too weak to reduce an unemployment rate stuck above 8 percent for 43 months. Officials forecast today that unemployment will average 7.6 percent to 7.9 percent in the final three months of next year, compared with 7.5 percent to 8 percent at their June meeting.
“The labor market looks like it has a very long slog back to normal,” Michael Dueker, a former St. Louis Fed economist who helps oversee $152 billion as chief economist for Seattle-based Russell Investments, said before the Fed meeting. “If you look at the momentum the economy had in the first quarter, there’s no sign of that returning anytime soon.”
Thirteen of 19 officials said the first interest-rate increase would be warranted in 2015 or later. The Fed has kept the benchmark lending rate in a record-low range between zero and 0.25 percent since December 2008.
In 2014, the unemployment rate will be 6.7 percent to 7.3 percent in the fourth quarter, compared with an earlier estimate of 7 percent to 7.7 percent.
Fed officials update their economic forecasts four times a year. Twelve members of the FOMC vote on the policy statement, while the interest-rate and economic projections reflect the views of all 19 Fed officials.
Not since February has monthly payroll growth topped the 150,000 to 200,000 level Chairman Ben S. Bernanke says is needed to reduce unemployment.
Employers added 96,000 jobs in August, down from 141,000 in July, the Labor Department said Sept. 7. The 226,000 average pace of growth in the first quarter of this year plunged to 67,000 in the second quarter.
The unemployment rate declined to 8.1 percent last month from 8.3 percent as 368,000 Americans left the labor force. More than 12.5 million in the U.S. are out of work, and more than 5 million have been jobless for at least six months.
Republican presidential candidate Mitt Romney is using unemployment as a key part of his pitch to voters that President Barack Obama doesn’t deserve a second term. Romney suggested in Iowa last week that Obama is relying on the Fed to spur an economic recovery his policies failed to create. The jobless rate has persisted above 8 percent since February 2009, the president’s first full month in office.
Speculation that central banks would do more to boost growth is lifting stocks. The Standard & Poor’s 500 Index rose to 1,437.92 on Sept. 7, the highest close since January 2008 and within 10 percent of its all-time high in October 2007, after the European Central Bank announced a bond-buying plan.
The U.S. economy grew 2 percent in the first quarter of this year before slowing to 1.7 percent in the following three months. GDP will expand 1.8 percent in the third quarter and 2.1 percent in the fourth, according to the median of 76 estimates in a Bloomberg News survey.
Weaker economic growth has depressed the earnings outlook at U.S. companies from FedEx Corp. to Intel Corp. Memphis, Tennessee-based FedEx, operator of the world’s largest cargo airline, said Sept. 4 that declining package volume will reduce profit for the quarter that ended Aug. 31.
Intel, the world’s largest semiconductor maker, cut its third-quarter sales forecast Sept. 7 on declining demand for personal computers from corporate customers in a “challenging macroeconomic environment,” according to a statement from the Santa Clara, California-based company.
“The economy is frustratingly slow,” Steven Blitz, chief economist at New York-based ITG Investment Research Inc., said before the projections were released. “In the face of uncertainty, people just put their hands in their pockets and stop, and we’re getting a fair bit of that.”