1. Archive


The Fed revises its GDP outlook, citing higher unemployment and credit and housing crises.

Even Federal Reserve policymakers recognized it: Their huge double dose of medicine for the sickly economy was not a cure.

On Wednesday, the Fed downgraded its expectations for economic growth this year, citing damage from the housing slump and credit crunch. It said it also expects higher unemployment and inflation.

Fed Chairman Ben Bernanke and his colleagues are concerned the economy could continue to weaken, even after their aggressive interest rate cuts last month. In their words, "the committee agreed that downside risks to growth would remain even after this action," according to minutes of the Fed's Jan. 29-30 closed-door meeting. The minutes were released Wednesday.

Under its new economic forecast, the Fed said it now believes the gross domestic product will grow between 1.3 percent and 2 percent this year. The previous forecast was for growth between 1.8 percent and 2.5 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.

At that session, the Fed policymakers voted to cut a key interest rate by one-half percentage point to 3 percent. Just eight days earlier, in an emergency session, they had slashed the rate by a rare three-quarters of a percentage point. The two cuts together marked the most dramatic reductions in a single month by the Fed in a quarter century.

With the economy slowing, the Fed projected that the jobless rate will rise to between 5.2 percent and 5.3 percent this year. The old forecast was for the rate to climb as high as 4.9 percent. Last year, unemployment averaged 4.6 percent.

And, with energy prices heading upward, the Fed also raised its projection for inflation. It now expects inflation to be between 2.1 percent and 2.4 percent this year, up from the previous forecast of 1.8 percent to 2.1 percent.

The Fed said the revisions reflected factors including "a further intensification of the housing market correction, tighter credit conditions ... ongoing turmoil in financial markets and higher oil prices."