Fed May Cut Interest Rates If Jobless Rate Rises : Economy: Economists predict that the unemployment rate will rise to 6.9% when the Labor Department releases new figures Friday.

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From Reuters

Economists predict that the nation’s unemployment picture will worsen when the Labor Department releases November figures Friday, and that could lead to another interest rate cut by the Federal Reserve.

The unemployment rate will probably rise in November to 6.9% from 6.8% in October, Wall Street economists said in interviews.

The figures will provide the first official look at the economy’s performance last month.

The economists also predicted a sizable drop in the number of new jobs created outside the farm sector--a key measure of economic vitality. The average forecast was for the number of non-farm jobs to drop by 31,000 in November after falling by 1,000 in October.


If the figures are as bad as expected, it would confirm that the economic recovery virtually stalled in the fourth quarter. That could prompt the Fed to try to revive the economy by loosening credit, which would lead to lower interest rates for businesses and consumers.

“There is a good chance it will lead to an easing of policy,” said Robert Chandross, chief economist of Lloyds’ Bank.

The last Fed action to stimulate the economy came Nov. 6 when the discount rate, which the Fed charges to banks for loans, was cut to 4.5% from 5%.

Chandross said he expects the next Fed move to include a cut in the discount rate to 4% and a lowering of the federal funds rate, which banks charge to each other for overnight loans.

The federal funds rate, now at 4.75%, could be cut to 4.5% or 4.25%, they said.

“Cutting funds won’t do much at this point,” Chandross said. A more visible discount rate cut would be needed to bolster consumers’ flagging confidence in the rebound.

Economists say that under the department’s seasonal adjustment factors, about 300,000 retail employees should normally be added to the economy for the holiday shopping season. But few expect that many to find work, which would bring down the job creation number for November.


Marilyn Schaja, an economist at Donaldson, Lufkin & Jenrette, said she expects the number of new retail jobs to fall 40,000 to 50,000 short of the 300,000 figure.

She also predicted sizable declines in construction and manufacturing employment but said health care jobs should increase, helping to limit the drop in new jobs.

The November report is also likely to show a downward revision in the number of non-farm jobs in October, economists said.

Alan Lerner, a managing director at Bankers Trust Co., said any downward revision would likely be in services.