Federal Reserve forecasts economic slowdown
February 21, 2008
On Wednesday, the 20th of February, the Federal Reserve published its predictions regarding the future of US economy. This was published along with the minutes of the two meetings of the Fed held in the month of January and it was declared that the growth rate of the economy is going to slow down further. Ben Bernanke, the chairman of the Federal Reserve said that they might cut the interest rates even further to stop further slowing down.
The Fed said that the growth rate they see for the future is in the range of 1.3 percent to 2 percent in 2008. This was down from their previous forecast in the month of October when they said that the growth was going to be in the range of 1.8 percent to 2.5 percent for the year 2008. In the report, they compiled the central bank also said that rate of unemployment in the year is going to be between 5.2 percent or 5.3 percent. This rate which they have predicted is more than what they had forecasted earlier. The previous forecast was only 4.8 percent or 4.9 percent. The unemployment rate in the month of January according to the reports of the Labor Department was 4.9 percent.
Even though the Federal Reserve has come out with the most downbeat forecast till date, the Fed officials still remain optimistic about the entire scenario. The leading economists in the country, who are of the view that USA is already in a recession, were totally baffled by the forecast of the Fed.
The Wall Street, however, was quite happy with the forecast report with which Fed came out. The fact that they are still considering cutting down on the rates resulted in the stocks rallying late on Wednesday. This is despite the fact that the Fed, in its report has also mentioned that expectations of an inflation are going to be very high this time. Oil prices hitting a record high of almost $101 a barrel was also not enough to discourage the investors on Wednesday.
Ben Bernanke in the previous week had also said that the forecast that they were going to produce was going to be rather gloomy. In an effort to keep the recession at bay, the Fed had cut the interest by more than 1 percent in the month of January in two different moves. During that time period, many members were so alarmed by the inflation rates that they proposed increasing the rates back to certain extent. But, now, most members feel that the cut in rates is justified by the current forecast which they let out.
Even though the term recession has not been mentioned in the forecast report, the Fed has mentioned an Economic downturn twice. This, many economists believe, is the closest that Fed will ever come to admitting that the economy is doing very badly indeed. For most part of the report, the Fed has also dismissed the risks concerning inflation.
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