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Fed's '08 Forecast Sees Slow Growth, More Joblessness

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The Associated Press

Published: May 22, 2008

WASHINGTON - The Federal Reserve on Wednesday sharply lowered its projection for economic growth this year, citing blows from the housing and credit debacles along with zooming energy prices.

It also expects higher unemployment and inflation.

Even with the more downbeat outlook, Fed officials left the impression that they would not be inclined to cut interest rates further. The decision at the Fed's last meeting on April 29-30 to reduce rates was a "close call," according to minutes of those deliberations released Wednesday.

The Fed hopes that its series of powerful rate cuts ordered since last September and the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses would help energize growth in the second half of this year.
Fed officials viewed economic activity "as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of this year," the documents stated.

Given the hope of a second-half economic pickup but worried about inflation, Fed officials signaled last month that their one-quarter-point rate reduction, which dropped their key rate to 2 percent, might be their last rate cut for some time.

"Most members viewed the decision to reduce interest rates at this meeting as a close call," the documents revealed. "Although downside risks to growth remained, members also were concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices."

Under its new economic forecast, the Fed said it thinks gross domestic product will grow between 0.3 percent to 1.2 percent this year. That's lower than a previous Fed forecast that estimated growth to be between 1.3 percent and 2 percent.

GDP is the value of all goods and services produced within the United States and is the best barometer of the country's economic fitness.

These forecasts are based on "central tendencies," which exclude the highest three forecasts and the lowest three forecasts made by Fed officials.

With economic growth slowing, the Fed projected that the national unemployment rate will rise to between 5.5 percent and 5.7 percent this year. That is higher than the central bank's old forecast for the rate to climb as high as 5.3 percent.

With energy prices marching up, the Fed raised its projection for inflation. The Fed now expects inflation to be between 3.1 percent and 3.4 percent this year. Its old forecast for inflation was estimated to come in about 2.1 percent to 2.4 percent.

Oil prices Wednesday blew past $130 a barrel for the first time. Gasoline prices moved closer to $4 a gallon.

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