The Federal Reserve has cut its forecast for US economic growth next year and warned of high-than-expected unemployment.
In a new effort to be more open, the Fed released a detailed forecast that summarized the predictions of the Fed governors and regional bank presidents, following chairman, Ben Bernanke’s announcement last week that the central bank would start producing quarterly economic forecasts.
Fed officials said growth would slow to a range of 1.8 percent to 2.5 percent next year, down from growth around 2.45 percent in 2007.
Inflation/Unemployment
Fed officials also expect unemployment to rise only slightly and inflation to edge down with officials concurring that recent evidence of slowing inflation was more than a temporary blip and would “likely be sustained.”
Inflation is expected to remain contained while headline inflation, as measured by the PCE index, is expected to slow to 1.8 percent-2.1 percent in 2008, down from around 2.95 percent this year.
Core inflation will remain steady in a range of 1.7 percent -1.9 percent.
The unemployment rate is expected to tick up to about 4.9 percent in the fourth quarter of 2008, up from the previous forecast of 4.75 percent and the latest reading of 4.7 percent in October.
Rate cut?
After their quarter point rate cut in October, several speeches from Fed officials suggest the Fed want to hold rates steady at their next meeting on December 11.
However, many economists are calling for a further drop and are skeptical that the central bank can hold off cutting rates for long.
Despite this, the Federal Open Markets Committee said that its vote for a quarter-point cut in interest rates had been close.
“Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity,” the minutes read.
November 21, 2007
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