The economic projections released by the Federal Reserve on Wednesday estimated that in less than two years the unemployment rate would be down to 7 to 7 ½ percent, with the economy growing at an inflation-adjusted rate of nearly 4 percent. And in the next three to five years, the unemployment rate would likely be back to normal: between 5.2 and 5.6 percent.
This is wishful thinking. Okun’s Law (or rule of thumb) says that it’s going to take inflation-adjusted growth in the economy of at least 3 percent to make any dent at all in the unemployment rate. And even if GDP does grow at 4 percent, as the Fed projects, unemployment will likely drop by less than one half of one percent, or still well above 8 percent. Not only does that not bode well for President Obama’s reelection chances (no President since FDR has been elected to a second term when unemployment has been over 7.2 percent), it’s also bad news for those who continue their job search in a flat economy.
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