According to Bank of America, unemployment will rise to 5.6 per cent by next year.
The bank raised its forecast for unemployment after the Federal Reserve officials indicated that they think the central bank’s interest rate target will approach five percent next year. This is due to the steeper slope and higher peak of interest rates. “hard(er) landing”More likely according to research by the U.S. economics group led by Michael Gapen.
Although the bank was expecting a rate of five percent in unemployment for 2023 year-end, this rate has now risen to almost twelve percent.
The August unemployment rate was 3.7%, slightly higher than the 3.5% in July, and the 3.6% in the previous months since March.
“The Fed’s actions suggest to us that it is committed to reducing inflation and it appears willing to accept some deterioration in labor market conditions,”The Bank of America economists wrote.
In the fourth quarter of 2023, it expects that GDP will drop to 1%. According to the bank, the Fed is likely to raise the Federal Funds Rate to between 4.75 and 5.0 percent.
A rapid rise in unemployment—such as the nearly two hundred basis point hike forecast by Bank of America—is often considered a marker of a recession. Claudia Sahm’s economist named the Sahm Rule. It states that a recession is when the three-month average national unemployment rate increases by 0.50 percentage points (or more) relative to the low of 12 months prior. If Bank of America’s forecast is correct, the U.S. will be in a Sahm Rule recession sometime next year.
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