Fed predicts high unemployment for next 3 years

The Federal Reserve predicts the nation’s unemployment rate will stay elevated until late 2015 and says it will keep short-term interest rates low for the next three years. The latest economic projections released today from the Fed were little changed from September. The central bank still expects economic growth to be no stronger than 3% next year. Growth could improve to 3.5% in 2014 and 3.7% in 2015. The central bank sees unemployment no lower than 7.4% next year and 6.8% by the end of 2014. The earliest the Fed foresees unemployment dropping below 6.5% is the end of 2015. Following its final policy meeting of the year, the Fed also announced today that it plans to keep its key short-term interest rate near zero at least until the unemployment rate moves below 6.5%. And it says it will continue spending $85 billion a month on bond purchases to drive down long-term borrowing costs and stimulate economic growth. The Fed will spend $45 billion a month on long-term Treasury purchases to replace a previous bond-purchase program of equal size, and will keep buying $40 billion a month in mortgage bonds. With its new purchases of long-term Treasurys, the Fed’s investment portfolio, which is nearly $3 trillion, would swell to nearly $4 trillion by the end of 2013 if its bond purchase programs remain in place. Altogether, the policies are intended to help an economy that the Fed says is growing only modestly, with 7.7% unemployment in November.