Fed: Unemployment Headed Below 8%

There was a lot to digest from yesterday’s FOMC minutes and subsequent Ben Bernanke press conference. But one of my biggest takeaways is that the central bank predicts that the jobless rate will dip below 8% by year’s end.

Granted, that wouldn’t be a huge improvement over the 8.2% unemployment rate we have now. But the rate hasn’t dipped below 8% since early 2009. To do so would be a huge milestone – at least psychologically. You can bet that President Obama will make reducing the unemployment rate below 8% a top priority in his re-election campaign.

The Fed’s unemployment outlook was a change from its January projection of an 8.2 to 8.5 percent jobless rate. What didn’t change was Ben Bernanke and company’s vow to keep short-term interest rates near zero until late 2014. Bernanke said that keeping interest rates low is “still appropriate for our economy.”

In other words, while the Fed sees signs of improvement from the U.S. economy, it’s not enough to alter its stance on near-zero interest rates.

That could change, however. The minutes revealed that seven of the 10 FOMC officials believe that short-term interest rates should be increased to at least 2% before late 2014.

Stocks have posted only modest gains since the minutes were released yesterday afternoon, so investors weren’t exactly wowed by the report. By and large, things were the same.

But if the Fed is right and unemployment falls below 8% soon, then maybe that will be something that gets investors excited.