Bank of America Expects Unemployment to Soar to 5.6% Next Year

Unemployment will rise to 5.6 percent by the end of next year, according to a revised Bank of America forecast.

The bank raised its forecast for unemployment after Federal Reserve officials indicated they believe the central bank’s interest rate target will approach 5 percent next year. The steeper path and higher peak in interest rates make a “hard(er) 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 five percent for the end of 2023, so the new rate corresponds to an increase of almost 12 percent.

In August, the jobless rate was 3.7 percent, up slightly from 3.5 percent in July and 3.6 percent in each of the previous months since March.

“The Fed’s actions give us a signal that it is committed to reducing inflation and appears willing to accept some deterioration in labor market conditions,” Bank of America economists wrote.

The bank expects GDP to fall to 1 percent in the four quarters of 2023. The bank expects the Fed to raise its target range for the federal funds rate to between 4.75 percent and 5.0 percent.

A rapid rise in unemployment — like the nearly 200 basis point increase forecast by Bank of America — is often seen as a sign of a recession. Named after economist Claudia Sahm, the Sahm Rule states that a recession has begun when the three-month moving average national unemployment rate rises 0.50 percentage point or more from its low in the previous 12 months. If Bank of America’s forecast is correct, the US will be in a Sahm rule recession sometime next year. Bank of America Expects Unemployment to Soar to 5.6% Next Year

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