WASHINGTON — Federal Reserve leaders predict unemployment will drop to 7.6 percent by the end of this year, and to 5.5 percent by the end of 2021 — even as much about the path of the virus and its influence over the economic recovery remain unknown.
As the Fed concluded two days of policy meetings on Wednesday, the projections suggest Fed leaders are growing more optimistic about the recovery than they were earlier this summer.
By 2023, policymakers’ projections put the unemployment rate at 4 percent.
“The recovery has progressed more quickly than generally expected. Even so, overall activity remains well below, and the path ahead remains highly uncertain,” Chairman Jerome Powell said at a news conference.
At the same time, Fed officials signaled the benchmark interest rate could stay at or near zero through 2023.
The Fed also said it would increase holdings of Treasury securities and agency mortgage-backed securities at the current pace.
Fed leaders say these moves have staved off an even deeper financial crisis.
“We think our stance is appropriate today, and with this very strong powerful forward guidance ... rates will remain highly accommodative unless we are very far along in our recovery,” Powell said.
“Right now, we think our policy support is enough to support the expansion.”
By August, the unemployment rate had already fallen to 8.4 percent, lifting hopes that the economy was finding its footing.
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Policymakers’ estimates for how far GDP would fall this year also improved. Officials now predict a decline of 3.7 percent by the end of the year, compared to June expectations of a 6.5 percent drop.
“The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world,” policy makers said in a statement released Wednesday.
“Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year.”