Fed lowers outlook for growth in 2008
The Fed also released minutes of its Oct. 31 meeting, indicating that the central bank's decision to cut its target for a key short-term interest rate a quarter-point was a "close call."
Fed officials voted for the rate cut to provide "additional insurance against an unexpectedly severe weakening in economic activity" and noted they could reverse the move if needed.
The Fed has cut the federal funds rate, what banks charge each other for overnight loans, from 5.25 percent to 4.5 percent since September in an effort to stabilize the economy. The rate is a benchmark for many consumer and business loans.
The updated assessment was the Fed's first quarterly report on inflation, unemployment and growth, part of Chairman Ben Bernanke's plan to make the central bank more open. Along with the near-term analysis, the three-year forecast indicates Fed officials see a 1.6 percent to 1.9 percent inflation rate as a longer-term goal.
The forecast reiterated Bernanke's recent prediction that the economy will slow through the end of 2007. In 2008, the Fed expects growth of 1.8 percent to 2.5 percent, "notably below" its 2.5 percent to 2.75 percent forecast in June. The range of growth forecasts among Fed regional bank presidents and Fed governors ranged as low as 1.6 percent and as high as 2.6 percent.
Unemployment, 4.7 percent in October, is expected to rise to 4.8 percent to 4.9 percent next year, staying near that range through 2010. Overall inflation will gradually moderate from about 3 percent this year to 1.6 percent to 1.9 percent in 2010.
The forecast says Fed officials viewed growth risks as "weighted to the downside," noting markets remain strained and worrying economic weakness could lead to further credit tightening, "which could in turn slow the economy further."
The forecast appears to put more emphasis on the risk to growth than the Fed's statement after the Oct. 31 meeting, which called the risks of higher inflation and slower growth roughly balanced.
Brian Bethune of Global Insight says his firm expects the economy to grow about 2 percent in 2008, near the bottom of the Fed's range. Bethune says the Fed outlook looks "a little rich" and predicted the central bank would have to cut rates again.
Mark Zandi of Moody's Economy.com says while he expected the economy to skirt a downturn, "Right now, it feels more likely than not that the economy is devolving into recession."
WBJ Web Partners
Most Recent
Most Recent
0 Comments