Economic Perspective: The Fed’s Forecasts

MARY WALDEN:

“Today’s program looks at the Fed’s forecast. Mike, the Federal Reserve, usually called the Fed, has a large group of economists who make periodic forecasts. Their projections are closely watched. The Fed just released new economic forecasts for the next two years. Are they optimistic?”

MIKE WALDEN:

“They are optimistic in terms of predicting that we will recover from the coronavirus. The economy will recover, but it will take time. For example, for the entire year of 2020 the Federal Reserve does see the economy shrinking. Now most of that shrinking will have occurred in the second quarter, but overall the economy will have collapsed by about 6.5 percent during all of 2020 according to the forecast from the Federal Reserve.”

“Then the Fed sees the economy expanding by about five percent in 2021, and by about 3.5 percent in 2022, and then after that the economy will grow by about two percent a year which is actually the growth rate we had before the coronavirus made a visit to us.”

“Now regarding unemployment, the Federal Reserve predicts, again for the entire year of 2020, the unemployment rate will average a little of nine percent. Then in 2021, it will be lower at 6.5 percent, 2022 lower even at 5.5 percent, but it’s not going to get near four percent until after 2022.”

“So again this does show an improving economy, but it’s going to take years, unfortunately, for us to get our unemployment rates and our growth rates back to where they were.”

Mike Walden is a Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.