Tim Duy, Columnist

Fed's Labor Market Forecasts Don't Make Sense

There's a feeling that the unemployment rate projection is essentially being reverse-engineered.

June 22, 2017 at 12:00 PM UTC

Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy's Fed Watch.

The unemployment rate is the lowest since 2001.
Bloomberg

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The Federal Reserve’s unemployment forecast doesn’t add up. It is neither consistent with the median of policy makers’ growth forecasts nor consistent with Chair Janet Yellen’s description of labor market strength. Hence, central bankers will likely find unemployment undershooting their forecast in the second half of 2017. That will keep the central bank in a hawkish mood even if lackluster inflation continues.

The latest Summary of Economic of Economic Projections places the median forecast for year-end unemployment at its current level of 4.3 percent. In other words, unemployment has fallen as far as it will go this year, according to the Fed, despite both a 0.4 percentage point decline since December and a history of overly pessimistic forecasts of unemployment. Just on face value, it seems like the forecast will again prove pessimistic.