Unemployment will climb to 5.6% by the end of next year, according to a revised forecast from Bank of America.
The bank raised its unemployment forecast after Federal Reserve officials said they believed the central bank’s interest rate target would approach 5% next year. The steeper path and higher peak in interest rates make a “(harder) landing” more likely, according to a research note from the US economics team led by Michael Gapen.
The bank had forecast an unemployment rate of 5% for the end of 2023, so the new rate is an increase of almost 12%.
In August, the unemployment rate was 3.7%, up slightly from 3.5% in July and 3.6% in each of the previous months since March.
“The Fed’s actions suggest to us that it is committed to reducing inflation and that it appears willing to accept some deterioration in labor market conditions,” the Bank of America economists wrote.
The bank expects GDP to fall to 1% in the four quarters of 2023. The bank believes the Fed will raise its target range for the federal funds rate to 4.75 to 5.0%.
A rapid increase in unemployment, such as the nearly two hundred basis point rise predicted by Bank of America, is often seen as a marker of recession. The Sahm Rule, named after economist Claudia Sahm, says a recession has started when the three-month moving average of the national unemployment rate rises 0.50 percentage points or more from its 12-month low. previous ones. If Bank of America’s forecast is correct, the US will experience a Sahm Rule recession within the next year.