Fed Sees Hikes Boosting Unemployment in Time for 2020 Election

(Bloomberg) -- Federal Reserve policy makers’ new economic projections contain a message President Donald Trump probably isn’t going to like: Interest-rate increases will start to hit the U.S. economy in 2020, leading to rising unemployment during a presidential election year.

Projections for interest rates and unemployment published Wednesday showed the median participant on the U.S. central bank’s rate-setting Federal Open Market Committee expects it will be appropriate to raise the federal funds rate into a 3 percent to 3.25 percent range by the end of 2020, and leave it there through the end of 2021 -- perhaps marking the end of the current tightening cycle that began in December 2015.

That rate level is higher than the median participant’s estimate of the so-called "neutral" interest rate that keeps unemployment stable. The projections raise the question of whether the end of rate hikes is contingent on a rising unemployment rate, which is now at the lowest level in five decades.

The projections show that the jobless rate is expected to begin rising in 2020. The median estimate for unemployment at the end of 2019 is 3.5 percent, compared with a projection of 3.6 percent for the end of 2020 and 3.8 percent in 2021.

According to a footnote, "each participant’s projections are based on his or her assessment of appropriate monetary policy." The estimates therefore suggest Fed officials are still uncomfortable with unemployment at such low levels.

To contact Bloomberg News staff for this story: Matthew Boesler in New York at mboesler1@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

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