WASHINGTON: Federal Reserve officials forecast the US unemployment rate will fall to 6.5 per cent to 6.8 per cent by end-2014, possibly reaching its stated threshold to raise the benchmark lending rate.
At the same time, 15 of 19 participants on the Federal Open Market Committee (FOMC) expect the first rise in the federal funds rate to occur in 2015 or later. That exceeds the 14 of 19 who projected in March the first rate increase would happen after 2014.
US central bankers in December linked changes in the benchmark borrowing cost to the outlook for employment and prices. The FOMC said the rate will remain in a range of zero to 0.25 per cent so long as unemployment remains above 6.5 per cent and the outlook for inflation is no higher than 2.5 per cent. The nation’s jobless rate in May was 7.6 per cent.
Officials’ estimates for the jobless rate centred at 7.2 per cent to 7.3 per cent for this year, 6.5 per cent to 6.8 per cent for 2014, and 5.8 per cent to 6.2 per cent for the average of the final three months in 2015, the FOMC forecasts show.
In March, the central-tendency projection for unemployment was 7.3 per cent to 7.5 per cent at the end of this year, 6.7 per cent to 7 per cent at the end of 2014, and 6 per cent to 6.5 per cent at the end of 2015.
The US economy has shown resilience in the face of government spending cuts as consumers boosted spending and propelled gross domestic product to a 2.4 per cent annual pace in the first quarter.
Fed officials, led by Ben Bernanke, now forecast that the economy would grow 2.3 per cent to 2.6 per cent this year, and 3 per cent to 3.5 per cent in 2014. For 2015, their estimates centred around 2.9 per cent to 3.6 per cent.
In March, they estimated 2013 growth at 2.3 per cent to 2.8 per cent, and growth in 2014 of 2.9 per cent to 3.4 per cent. For 2015, they estimated an expansion of 2.9 per cent to 3.7 per cent.
A rapid slowdown in inflation has surprised some Fed officials this year. The personal consumption expenditures (PCE) price index rose 0.7 per cent for the year through April, the lowest since October 2009 and more than a percentage point below the FOMC’s 2 per cent target.
Excluding food and fuel, consumer prices climbed 1.1 per cent in the 12 months through April, matching the smallest increase since records began in 1960, according to a so-called core measure watched by the Fed.
US central bankers estimated the PCE index will rise 0.8 per cent to 1.2 per cent this year, and 1.4 per cent to 2 per cent in 2014, according to central tendency estimates. For 2015, they estimate a 1.6 per cent to 2 per cent increase their June estimates show.
In March, officials forecast prices would rise 1.3 per cent to 1.7 per cent this year, and 1.5 per cent to 2 per cent next year. The March outlook for 2015 prices showed a gain of 1.7 per cent to 2 per cent.
Fed officials’ estimates on the path of the federal funds rate showed that four expected it to be 1 per cent or higher by year-end 2014, the same number as in the March projections. By 2015, 13 officials expected the policy rate to be 1 per cent or higher at year end, up from 10 in the March forecast.
(Bloomberg)
