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Fed Officials Lower Projection for Unemployment Rate in 2014

Dec. 18 (Bloomberg) -- Federal Reserve officials raised their assessment of the outlook for the job market, predicting the unemployment rate will fall as low as 6.3 percent by the end of next year, compared with a September projection of 6.4 percent to 6.8 percent.

The outlook is part of economic projections released today after a two-day meeting by the Federal Open Market Committee in Washington. The committee decided to cut the pace of its monthly bond buying to $75 billion from $85 billion, taking their first step toward unwinding their unprecedented monetary stimulus.

Most FOMC participants reiterated their view that the Fed will refrain from raising the benchmark interest rate until 2015. The central bank today left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

The panel added it “likely will be appropriate” to refrain from raising its benchmark rate “well past the time” joblessness falls below 6.5 percent, especially if inflation falls short of its target.

The jobless rate dropped to a five-year low of 7 percent in November as the Fed continued to provide stimulus to the economy with $85 billion in monthly purchases of longer-term Treasuries and mortgage-backed securities. Fed officials are trying to spur the expansion with low interest rates to encourage businesses and households to invest and spend.

FOMC Predictions

FOMC participants also predicted the unemployment rate would be 5.8 percent to 6.1 percent in the fourth quarter of 2015, and 5.3 percent to 5.8 percent at the end of 2016.

In September, they projected that the jobless rate would fall to 5.9 percent to 6.2 percent in the fourth quarter of 2015, and to 5.4 percent to 5.9 percent at the end of 2016.

A majority of FOMC participants -- 12 out of 17 -- expect the first increase in the main interest rate in 2015. Two projected the first rate increase in 2014, while three forecast an initial move in 2016.

Fed officials’ median estimate for the federal funds rate at the end of 2015 was 0.75 percent, and 1.75 percent for the end of 2016.

Central bankers forecast an expansion of 2.8 percent to 3.2 percent next year, according to their central tendency estimates, which eliminates the three highest and three lowest projections. Fed governors and the 12 reserve bank presidents estimated the economy would grow 3 percent to 3.4 percent in 2015, and 2.5 percent to 3.2 percent in 2016.

Fed officials project the personal consumption expenditures price index to rise 1.4 percent to 1.6 percent next year; 1.5 percent to 2 percent in 2015 and 1.7 percent to 2 percent in 2016.

Inflation measured by the PCE index rose 0.7 percent for the 12-month period ended in October, more than a percentage point below the central bank’s 2 percent target.

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Caroline Salas Gage in New York at csalas1@bloomberg.net

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

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