How Many Jobs Will the Fed’s War on Inflation Cost?

Economic forecasters predict a “mild” increase in the unemployment rate—putting millions out of work

Man using laptop computer at home, looking concerned and stressed out

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If government economic forecasts are correct, there’s going to be a “mild” recession later this year—but it probably won’t seem so mild to the millions who would be put out of work. 

The Federal Reserve’s ongoing campaign of interest rate hikes is intended to slow the economy and cool inflation. Hikes are also likely to hurt the labor market and economists differ on just how many jobs will be lost.

Officials on the Federal Open Market Committee, the central bank’s policy-setting body, forecast this week that unemployment would rise to 4.6% at the end of the fourth quarter of 2024, up from its current near-record low level of 3.6%. That contrasts with economists at the Congressional Budget Office, who predicted in February the rate would get as high as 5.1% before settling back down.

Economists at the Hamilton Project, an economics group within the centrist think tank the Brookings Institution, said the hot labor market would have to cool off to bring inflation under control, echoing remarks from the Fed.

“Viewed in the context of past business cycles, that would comprise a soft-ish landing and would constitute a remarkably swift return to a healthy economy,” they wrote in a blog post. 

Assuming the size of the labor force remains the same, the Fed’s projection would mean there would be 1.7 million more people out of work than there are now, while the CBO’s projection would increase the ranks of the unemployed by 2.5 million. 

The damage would be greater if the landing were harder than those “soft-ish” scenarios, with an International Monetary Fund projection from January seeing the U.S. unemployment rate averaging 5.4% through 2024 and 2025—equivalent to 3 million more jobless workers. 

Article Sources
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  1. Federal Reserve. "March 22, 2023: FOMC Projections materials, accessible version."

  2. Congressional Budget Office. "Budget and Economic Data." Download 10-year economic projections, February 2023.

  3. Hamilton Project. "Are We Headed for the Soft-ish Landing Projected by CBO and the Fed?"

  4. Bureau of Labor Statistics via Federal Reserve Economic Data. "Civilian Labor Force Level and Unemployment Level."

  5. International Monetary Fund. "World Economic Outlook."

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