Federal officials expect the unemployment rate to reach 4.5 percent by the end of 2023, as interest rate hikes slow the economy, according to projections released Wednesday.
That’s an uptick from the current 3.6 percent unemployment rate, meaning Fed officials predict millions of Americans could lose their jobs this year as the U.S. economy struggles with higher interest rates and the effects of the banking crisis.
However, the jobless figure was lower than the 4.6 percent estimate released in December.
The Federal Open Market Committee (FOMC) released its projections after the panel agreed to increase interest rates from 0.25 percent to 4.75 to 5 percent, in an effort to fight persistent inflation. Price growth remained stubbornly high at 6 percent annually in February, according to the consumer price index (CPI).
The Fed’s baseline rate projections show a 5.1 percent hike from last year — unchanged from its December projection — indicating more rate hikes could be coming. H said “an additional plan may be appropriate”.
Officials expect growth to fall to 3.3 percent by the end of the year and 2.5 percent by 2024. The central bank is targeting 2 percent inflation.
H Chair Jerome Powell insists that the central bank should keep raising rates to reduce demand for goods and services and drive up prices. He said the policy would lead to weaker wages and more layoffs – and would disproportionately impact vulnerable workers.
The US added 311,000 jobs in February, according to the latest reports, above analyst predictions. The growth of wages, the key index observed H, slowed to 0.2 percent in February, from 0.3 percent in the previous two months and 0.6 percent in November.
Sen. Elizabeth Warren (D-Mass.) and other progressive lawmakers have urged Powell to delay the hikes to stave off the economic order, arguing that inflation driven by record corporate profits will not drive growth.
“If you could speak to the 2 million working people who have decent jobs today that you plan to fire next year, what would you say to them?” Warren Powell asked the court at the March Banking Committee hearing. “How do you want to explain your decision to destroy their jobs?”
The financial sector is concerned about rate hikes for different reasons. Analysts note that Silicon Valley Bank collapsed in part because its long-term securities such as treasury bonds saw their value plummet due to higher rates.
Regulators and banking executives are seeking to prevent contamination. First Republic Bank, a San Francisco-based regional bank that once had $200 billion in assets, is seeking funding to remain solvent even after it received $30 billion in deposits from big banks.
“The US banking system is healthy and resilient,” H said in a statement. “Recent developments are likely to result in tighter credit conditions for households and businesses, and to weigh on economic activity, employment and growth.” The scope of these is uncertain.’
Goldman Sachs recently raised its discount rate from 25 percent to 35 percent, citing the effect of financial stress on small and midsize banks, which have creditors for employers. Investment bank analysts had hoped the Fed would hold off on rate hikes until banking worries subsided.
JPMorgan analysts said this week that the banking crisis is likely to make hikes more likely and added that H is “probably past the point of no return” when it comes to hikes.