Fed predicts several years of high unemployment Central bank leaves interest rates unchanged at near zero

WASHINGTON — The Federal Reserve left interest rates unchanged and near zero at its meeting Wednesday as the central bank projected high unemployment for several years and a long slog back from the pandemic-induced recession.

In their first economic projections this year, Fed officials indicated that they expect the unemployment rate to end 2020 at 9.3% and remain elevated for years, coming in at 5.5% in 2022. That would be well above the level they expect to prevail over the longer run in a healthy economy.

”Many millions have lost their jobs,” Fed Chairman Jerome Powell said at a news conference following the Fed’s two-day policy meeting. “There is great uncertainty about the future.”

The Fed is projecting a particularly sharp hit in 2020, with officials expecting output to contract by 6.5% at the end of this year compared to the final quarter of 2019, before rebounding by 5% in 2021.

The new forecasts predict a slower path back to economic strength than the Trump administration — and perhaps the stock market — seems to expect as the economy climbs out of a virus-spurred downturn. The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.

“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said in the post-meeting statement that accompanied the data outlook.

The Fed’s rate projections suggested that policy will remain on hold for years, leaving rates near rock-bottom for the foreseeable future. And central bankers pledged to continue buying governmentbacked debt “at least at the current pace” to sustain smooth market functioning, though they would “closely monitor developments” and were prepared to adjust those plans “as appropriate.”

Powell said the Fed will do “whatever we can, and for as long as it takes” to support the recovery and “limit lasting damage” to the economy.

The last time the Fed released projections was in December, when officials expected 2020 unemployment to close out at 3.5% with 1.9% inflation and 2% growth.

The coronavirus upended that outlook. Unemployment rocketed to 14.7% in April before easing to 13.3% in May. Economic activity tanked so sharply as states issued stay-at-home orders in March and April that the National Bureau of Economic Research announced this week that the United States entered a recession after the economy peaked in February.

The central bank’s release came hours after the Organization for Economic Cooperation and Development put out a report warning that the world economy faces the most severe downturn in a century and could experience a halting rebound.

“Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the OECD’s chief economist.