Fed forecasts modest US growth, high unemployment into 2015, a sign rates will remain low

WASHINGTON – The Federal Reserve foresees unemployment remaining high into 2015, suggesting it will keep short-term interest rates near record lows at least until then.

In its latest economic forecasts released Wednesday, the Fed predicts that the unemployment rate will stay above 6.5 per cent for about two more years. Fed policymakers also expect the economy to grow modestly this year and next despite economic gains so far in 2013.

The Fed’s updated forecasts are nearly identical to projections it made in December. The Fed has said it plans to keep its benchmark rate near zero as long as unemployment exceeds 6.5 per cent and the inflation outlook is tame.

The policymakers expect the economy to grow as little as 2.3 per cent this year — not enough to quickly drive down unemployment — or as high as 2.8 per cent. In 2014, growth could range from 2.9 per cent to 3.4 per cent in 2014, they predict.

The Fed has slightly upgraded its outlook for unemployment. It now sees the rate falling to between 7.3 per cent and 7.5 per cent by the end of this year. That’s down from a previous range of 7.4 per cent to 7.7 per cent.

The rate fell to 7.7 per cent in February, the lowest in four years.

By the end of 2014, the Fed expects the rate to fall between 6.7 per cent and 7 per cent. That’s a narrower range than in December, when it forecast a range of 6.8 per cent to 7.3 per cent.