The Fed expects years of high unemployment as the US economy recovers from the coronavirus pandemic

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• The Federal Reserve on Wednesday released projections for the US economy through 2022.
• It’s the first time the central bank has reported projections since the coronavirus pandemic began. 
• The Fed expects the unemployment rate to remain elevated through the next few years, but eventually trend lower as the economy recovers. 
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It will take years for the labor market to recover from the severe shock of the coronavirus pandemic, according to the Federal Reserve. 

The Federal Reserve released its first economic projections of the year on Wednesday, and expects that the unemployment rate will end 2020 at 9.3%, down from 13.3% currently. 

Further, the Fed thinks the unemployment rate will remain elevated for years, coming in at 5.5% at the end of 2022 and only falling to 4.1% — near a pre-coronavirus level — in the long term. 

“We have to be honest that it’s a long road,” Federal Reserve Chair Jerome Powell said in a news conference after the forecast was released. “It’s — depending on how you count it — well more than 20 million people displaced in the labor market.”

The Federal Reserve also released US gross-domestic-product forecasts, reporting that it expects output will slump 6.5% in 2020, but rebound to 5% in 2021. 

The Wednesday forecast predicts a much slower pace of economic recovery than the Trump administration has touted and does not indicate that the Fed expects a “V-shaped” rebound.. 

“The projections highlight what a long slog the recovery will be,” Steve Friedman, senior macroeconomist at MacKay Shields, said in a Wednesday note. 

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The last time that the Fed released a projection, in December, the central bank said it expected that unemployment would stay below 4% through 2022, and that US GDP would expand by nearly 2% each year in the same time period. In March, the COVID-19 crisis dashed those projections. 

On Monday, the National Bureau of Economic Research said that the economy peaked in February, before the sharp lockdowns in March, and that the US is officially in a recession. On Wednesday, ahead of the Fed meeting, the Organization for Economic Cooperation and Development said that the coronavirus pandemic has triggered the worst global recession in nearly a century. 

Powell also called out both racism — rare for a Fed Chair— and inequality in the labor market. 

“Unemployment has gone up more for Hispanics, more for African-Americans, and women have borne an extraordinary and notable share of the burden beyond their percentage in the workforce,” he said. “That’s really, really, really unfortunate.”

And he maintained that the Fed will do whatever it takes to support the economic recovery —the central bank expects to keep interest rates near zero through 2022 and maintain its recent pace of bond-buying.