The Federal projects the economy to bounce back next year, with unemployment falling to 5.5 percent by the end of 2021

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The Federal projects the economy to bounce back next year, with unemployment falling to 5.5 percent by the end of 2021

By August, the rate had already fallen to 8.4 percent, lifting hopes that the economy was finding its footing. The last time Fed policymakers released their projections in June, they expected the unemployment rate to fall to 9.3 percent by the end of the year, 6.5 percent by the end of 2021 and 5.5 percent by the end of 2022.

“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.”

Fed Chair Jerome H. Powell will appear at a news conference at 2:30 p.m. where he is expected to elaborate on the Fed’s thinking, where the economy is now and where the recovery could be headed.

The projections, which are completed anonymously by Fed policymakers, offer a snapshot into how Fed leaders think unemployment will trend in the years to come. But there is plenty the estimates do not account for.

For example, Congress is stalled on another massive stimulus bill, so the projections don’t factor in what the economic benefits of a rescue package might be, or how the absence of more aid could weigh on struggling households and businesses. Economists and policymakers also fear that the upcoming flu season, paired with a potential rise in coronavirus cases, could weigh on the broader recovery.

The Fed was quick to slash interest rates to zero in March, and Wednesday’s projections support widespread expectations that rates will remain low for some time.

That’s due to the scale of the current crisis and the Fed’s new policy framework which signals that the central bank won’t increase interest rates to respond to low levels of unemployment, and that leaders won’t worry as much about low rates triggering a rise in prices. Still, the Fed has offered little concrete information on how the new framework will be put into practice, and Powell will likely be questioned on the Fed’s plans at his news conference.

The economy added 1.4 million jobs in August, an encouraging sign that people were able to go back to work after Powell warned that a summer surge in coronavirus cases was starting to slow the pace of the recovery. The auto and residential real estate sector have also posted strong sales. And retail sales figures released Wednesday showed positive signs for consumer spending.

But there’s a long way to go. Just over half of the 22 million total jobs lost between February and April have not returned. Many of the Fed’s interventions lift the stock market but do little for Americans who don’t hold investments. And as more time passes, many businesses teetering on the brink risk permanent closure.


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