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Unemployment rate to surge in early 2023, according to Bank of America

Bank of America predicts high unemployment rate in 2023
Bank of America predicts high unemployment rate in 2023

Image source: Business Today

Efforts to curb inflation have prompted the Federal Reserve to act, but the Bank of America warns it could lead to mass unemployment.

Bank of America noted the Fed’s aggressive rate hikes and said the US economy will lose tens of thousands of jobs each month beginning early next year.

While September showed a strong job market, the Fed is working excessively to change it by raising interest rates.

Aggressive rate hikes will therefore lead to a decrease in the demand for appliances from cars and homes.

Inflation pressure

The Fed’s fight against inflation is increasing pressure, which means nonfarm payrolls will begin to decline in early 2023.

As a result, Bank of America said more than 175,000 jobs would be lost each month in the first quarter.

The bank’s charts suggest there will be job losses for most of 2023.

“The premise is a harder landing than a softer one,” said Michael Gapen, the head of US economics at Bank of America.

Ideally, the Fed would have dampened the labor market enough to bring inflation back to healthy levels without causing significant and lasting job losses.

However, Bank of America does not believe the Fed will make such a decision.

“We are looking for a recession to begin in the first half of next year,” Gapen said.

Read also: Federal Reserve raises interest for the fifth time in 2022

Unemployment peak

Friday’s employment report indicated that despite the market slowdown, the US added more than 263,000 jobs in September.

It brought the unemployment rate down to 3.5%, which corresponds to the lowest level since 1969.

However, Gapen expects unemployment to rise between 5% and 5.5% next year.

Meanwhile, the Fed predicts an unemployment rate of 4.4% in 2023.

The US central bank is raising interest rates at the fastest pace in four decades to curb inflation.

Fed officials said they were in no rush to exit anti-inflationary mode to help the economy avoid a slowdown or recession.

“They’ll accept some weakness in labor markets in order to bring inflation down,” said Gapen.

Fed officials say interest rates need to stay at “restrictive” levels for some time to come.

Gapen said that while recessions have “quick snapbacks,” the Fed’s stance on keeping interest rates high for an extended period suggests the situation is protracted.

“We could see six months of weakness in the labor market,” he said.

Read also: Inflation Heavily Affecting Rural America, Others Considering a Move to the City


Meanwhile, some forecasters are bullish about the state of the jobs market.

On Monday, the Conference Board announced that its September employment trend index was ticked.

The index is a combination of leading labor market indicators.

They said that meant job growth in the months ahead, but job gains were likely to slow from their recent pace.

The silver lining, however, is that people calling for a recession don’t see the unemployment rate skyrocketing like it did in 2008 or 2020.

Bank of America expects the unemployment rate to peak at 5.5% in 2023, down from a peak of nearly 15% in 2020.

“Although nobody wants to be callous about someone losing their job, this could be classified as a mild recession,” said Gapen.


US economy will soon start losing 175,000 jobs a month, Bank of America warns

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