US Federal Reserve sharply cuts growth forecast

May 22nd, 2008 - 4:57 am ICT by admin  

Washington, May 22 (DPA) The US Federal Reserve Wednesday sharply cut its growth forecast for 2008 but suggested it may halt a string of drastic rate cuts aimed at boosting the sagging US economy. The central bank predicted 2008 growth of 0.3 percent to 1.2 per cent, down from a January projection of 1.3 percent to 2 percent, according to the minutes of the Federal Open Market Committee’s April 30 meeting.

The Fed cut its benchmark interest rate by 0.25 percentage points to 2 percent at the April meeting, but the minutes indicate that inflation risks made it a difficult decision.

Consumer prices were projected to increase by 3.1 to 3.4 percent in 2008, up from 2.1 to 2.4 percent inflation expected in the Fed’s January forecast.

“Most members viewed the decision to reduce interest rates at this meeting as a close call,” the Fed minutes said. “Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook.”

Two of the board’s 10 members voted against April’s rate cut.

The economy expanded by 0.6 percent in the first quarter according to initial government estimates. Some economists believe the US has entered a recession.

The Fed’s federal funds rate has been cut from 5.25 percent to two percent since September to combat a housing and mortgage crisis that has engulfed the world’s largest economy.

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