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Published: Wednesday, 2/17/2010

Federal Reserve predicts unemployment will stay high over next 2 years


WASHINGTON — The Federal Reserve expects unemployment will stay high over the next two years because recession-scarred Americans are likely to stay cautious, making for only a moderate-paced economic recovery.

Fed policymakers said in a forecast released Wednesday that it will take "some time" for the economy and the jobs market to get back to normal. They did not spell out how long that would be. Previously they suggested it could take five or six years for economic conditions to return to full health. A "sizable minority," however, thinks it could take more than five or six years for the economy and the job market to return to normal.

In updated economic projections, the Fed said the unemployment rate this year could hover between 9.5 percent and 9.7 percent. Next year, it will drop to between 8.2 percent and 8.5 percent. By 2012, the jobless rate will range between 6.6 percent and 7.5 percent.

Although those forecasts are little changed from projections the Fed had released in late November, the figures show that unemployment will remain elevated heading into this year's congressional elections as well as the presidential election in 2012. A more normal unemployment rate would be between 5.5 percent and 6 percent.

Fed policymakers "expect that the pace of the economic recovery will be restrained by household and business uncertainty, only gradual improvement in labor market conditions and a slow easing of credit conditions in the banking sector," according to the forecast.

Against that backdrop, the Fed expects the economy will grow between 2.8 percent and 3.5 percent this year. Growth will pick up to between 3.4 percent and 4.5 percent next year and log similiar growth in 2012. The economy would need to grow by at least 5 percent a year to make a dent in the unemployment rate, analysts say.

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