US economy faces ‘unusually prolonged’ recovery

February 19th, 2009 - 10:03 am ICT by IANS  

Washington, Feb 19 (IANS) The United States’ economy would face an “unusually gradual and prolonged” period of recovery as it struggles to climb out of a deep global downturn, the US central bank has warned.

Releasing its economic outlook for 2009 Wednesday the Federal Reserve or Fed said it expected that the economy would contract by 0.5 percent to 1.3 percent this year, unemployment would rise to 8.5 to 8.8 percent and inflation would remain under greater pressure.

Bleak economic data reflecting a sharpening slide in housing, trade, industrial production, spending and employment rates “more than offset” any potential impact from an economic stimulus plan, the Fed said, forcing it to cut its economic outlook.

“Financial markets continued to be strained over all, credit remained unusually tight for both households and businesses, and equity prices had fallen further,” the central bank’s Open Market Committee said in its report.

The committee expects that the economy will ultimately rebound from a recession that began in December 2007, and will grow at a pace of 2.5 to 3.3 percent two years from now. But even as the economy heals, the Fed expects unemployment to remain near 8 percent.

The unemployment rate rose to 7.6 percent last month as the faltering economy lost 598,000 jobs.

For the first time, the Fed also released projections of longer-term growth going beyond its normal one-to-three-year predictions. The committee said the American economy was expected to grow by 2.5 to 2.7 percent annually over the next five to six years, and that unemployment rates would hover near 5 percent in the longer term.

As the Fed released its report, its chairman, Ben S. Bernanke, defended the intense measures the central bank had taken to try to revive frozen credit markets and restore confidence among borrowers and lenders.

The Fed has expanded its balance sheet to $2 trillion, demonstrating a willingness to print money to try to fight the downturn.

“The Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible,” Bernanke said at the National Press Club here.

– Indo-Asian News Service


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