The Federal Reserve expects the economy this year will sink at a slower pace than it previously thought, but that unemployment will top 10%, according to a forecast released today. The Fed now predicts the economy will shrink between 1% and 1.5% this year, an improvement from its old forecast issued in May. At that time, the Fed projected the economy would contract between 1.3% and 2%.
The upgrade comes from the expectation that the economy’s downhill slide in the first half of 2009 wasn’t as bad as previously thought. The Fed says the economy should start growing again in the second half of this year, although the pace is likely to be plodding.
Most Fed policymakers said it could take “five or six years” for the economy and the labor market to get back on a path of full health in the long term.
Against that backdrop, the Fed’s forecast for unemployment this year worsened. The central bank predicted the jobless rate could rise as high as 10.1%, compared with the previous forecast of 9.6%. The nation’s unemployment rate climbed to 9.5% in June, a 26-year high.
For 2010, the Fed predicted the economy would grow between 2.1% and 3.3%. That’s a slight upgrade from its old forecast of growth between 2% and 3%.
