The Fed just confirmed that its self-induced ‘growth recession’ could put more than a million Americans out of work
- New projections from the Federal Reserve show unemployment climbing to 4.4% in 2023.
- If proven correct, that would mean around 1.5 million more Americans would go unemployed by the end of next year.
- The inflation fight will be painful, but letting prices surge would bring "far greater pain," Fed Chair Powell said.
The Federal Reserve has already warned the fight against inflation will be a painful one. New projections reveal that, for more than a million working Americans, that pain could be severe.
Federal Open Market Committee members — the policymakers deciding on interest rate hikes — published new economic estimates on Wednesday, and their projected picture of the next few years isn't pretty. Officials now see the unemployment rate climbing to 3.8% by the end of the year, up slightly from the latest reading of 3.7%. The measure is then expected to rise to 4.4% next year and stay there through 2024. That's up from the prior estimates of 3.9% and 4.1% rates in 2023 and 2024, respectively.
Should officials' projections hold true, the jump in unemployment from July's low of 3.5% to next year's projection of 4.4% equates to about 1.5 million more Americans going unemployed, based on the current labor force level of around 165 million people working or actively looking for work.
The actual number could be higher still. The unemployment rate only counts out-of-work Americans who are still measured as in the labor force and actively looking for a job. If the labor force grows throughout next year, then the 4.4% unemployment rate will equate to even more jobless Americans.
A higher unemployment rate was to be expected from the central bank's war on inflation. Rising interest rates slow economic growth and cool demand. That leads companies to curb their hiring plans and, in some cases, lay workers off to cut costs. Growth will slow, unemployment will climb, and the US will likely find itself in a self-imposed growth recession.
As Fed Chair Jerome Powell put it on Wednesday, the labor market remains "extremely tight," and there "will likely be some softening" as the central bank targets demand.
The 4.4% projected rate adds fuel to progressives' argument that the Fed is risking widespread hardship by raising rates at the fastest pace since the 1980s. Labor activists rallied outside the central bank's Washington headquarters in June to urge policymakers to prioritize workers. Senator Elizabeth Warren tweeted after the Fed's Wednesday rate hike that she fears Powell is "already on the path" to putting millions of Americans out of work.
To Powell, the rapid pace of increases is necessary to cool inflation, and letting prices continue to surge "would mean far greater pain later on."
"If we want to set ourselves up and really, really light the way to another period of a very strong labor market, we have got to get inflation behind us," Powell said Wednesday. "I wish there were a painless way to do that. There isn't."