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Wednesday, February 18, 2009

Fed Downgrades Economic Forecast for This Year

Associated Press

WASHINGTON--The Federal Reserve on Wednesday sharply downgraded its projections for the country's economic performance this year, predicting the economy will actually shrink and unemployment will rise higher.

Under the new projections, the unemployment rate will rise to between 8.5 and 8.8% this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6%.

The Fed also believes the economy will contract this year between 0.5 and 1.3%. The old forecast said the economy could shrink by 0.2% or expand by 1.1%.

The bleaker outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

"Given the strength of the forces currently weighing on the economy," Fed officials "generally expected that the recovery would be unusually gradual and prolonged," according to documents on the Fed's updated economic outlook.

Against that backdrop, unemployment -- now at 7.6%, the highest in more than 16 years -- will keep climbing and stay elevated for quite some time, the Fed predicted.

Fed officials anticipated that unemployment would remain "substantially" higher than normal at the end of 2011 "even absent further economic shocks."

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