May 21, 2008 1:05 pm US/Central
Fed Predicts Increased Unemployment, Inflation
WASHINGTON (AP) ―
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 private 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 somewhat 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 were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices."
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