Fed predicts unemployment down to 9.3% by year’s end

Benchmark interest rate to remain near zero likely through ’22.

Federal Reserve leaders predict the U.S. unemployment will fall to 9.3% by the end of this year and 6.5% by the end of 2021, signaling confidence the economy will begin to recover in coming months from the stunning recession caused by the coronavirus outbreak.

In addition to releasing new forecasts Wednesday, the Fed also announced the benchmark interest rate would remain near zero and the central bank’s extensive bond buying programs will continue “at least at the current pace” for the foreseeable future.

Interest rates are likely to remain near zero through at least 2022, the Fed indicated. Low interest rates make it cheaper for Americans to borrow money to buy a home or car and for businesses to take out loans. Mortgage rates fell to an alltime low at the end of May, causing a surge in home-buying, even during the pandemic.

“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 a statement Wednesday at the end of its regularly scheduled two-day policy meeting.

The Fed’s forecasts are notably rosier than many others, including from the Congressional Budget Office, which predicts unemployment will remain above 11% by the end of this year and fall to 9.3% only by the end of 2021.

The Fed has vowed to do whatever it takes to help businesses and American households make it through the global health crisis that has quickly turned into an economic crisis with over 30 million Americans filing for unemployment aid.

But Fed Chair Jerome Powell has made it clear he prefers to err on the side of caution to ensure the economy improves instead of sliding backward in the coming months.

“The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time,” the Fed said Wednesday.

Fed Chair Jerome Powell prefers to err on the side of caution to prevent a backward slide.