Unemployment neared 20% in the spring as the COVID-19 pandemic closed businesses across the country. Millions of people were put out of work. The jobless rate has fallen to under 7% today. The Federal Reserve believes the rebound will quicken. In its new “Summary of Economic Projections,” the Federal Open Market Committee (FOMC) members forecast the jobless rate will drop to 5.0% next year, 4.2% in 2022 and 3.7% in 2023. The 3.7% would put the figure near the all-time low it set last year.
The projection has its foundation in “appropriate monetary policy,” which is the course the central bankers deem most likely to provide maximum employment and price stability. In other words, the bankers must keep inflation from raging without control, a problem that seems light years away now.
It is hard to imagine where the jobs will come from. Several industries would need to be almost completely rebuilt. Included in that would be nearly the entire hospitality and travel segments. Perhaps that is not hard to imagine once there has been a vaccine for a year. Brick-and-mortar retail would need to recover entirely. The move to e-commerce among American shoppers seems to make that impossible. And the lowest paying service jobs would need to make a total comeback. Perhaps the economy will produce millions of jobs that never existed before.
One reason the figure should be taken with a dose of skepticism is that 3.7% unemployment remains so rare. Even in the best of recoveries, the jobless rate rarely dips much below 5%, or 4% in the strongest of economies. Something like 15 million new jobs would need to be created, or recreated, to push a that number so extraordinarily low.
There is no way the Fed number is credible. It comes with very few details, other than the assumed strength of good policy. Policy has not worked before, at least not at the level the Fed would have people believe at this point. The 2023 forecast would be an entirely extraordinary rebound.