Fed cuts forecasts for US growth

Wednesday 22 June 2011 19.38
US slowdown - Fed blames temporary factors
US slowdown - Fed blames temporary factors

The US Federal Reserve has cut its forecasts for US economic growth this year, but it offered no hint of further measures to support the economy, saying growth should pick up soon.

In quarterly projections released at the end of a two-day meeting, the US central bank said the US economy should grow by 2.7% to 2.9% this year. This is 0.4 points lower than the range it expected in April.

The forecast for 2012 was also reduced by 0.35 points to a range of 3.3% to 3.7%.

The Fed blamed a recent slowdown in US growth and quickening of inflation partly on temporary factors, including higher commodity prices and disruptions from Japan's devastating earthquake. It said the forces pushing up prices should fade, allowing inflation to ease.

'The slower pace of recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply-chain disruptions associated with the tragic events in Japan,' the Fed said in a statement.

As widely expected, the Fed said it would maintain interest rates at exceptionally low levels for an extended period. Since December 2008, the Fed has kept its key target interest rate between zero and 0.25% in an effort to boost economic growth.
It also confirmed it was ending its $600 billion bond-buying programme at the end of the month. The Fed will have pumped more than $2.3 trillion into the economy by the end of June by buying securities on the markets.

The Fed also downgraded its view of the US labour market, saying it had been 'weaker than anticipated' and pushed its forecast for unemployment higher. It said the jobless rate was likely to average 8.6% to 8.9% in the fourth quarter, up from its April projections.

The US economy grew at just a 1.8% annualised rate in the first three months of the year.