The Federal Reserve last night slashed its 2008 US economic growth forecast by a half percentage point, citing a housing slump, tight credit and higher oil prices.
The Fed sees the world's biggest economy growing in a range of 1.3-2% this year, 'appreciably below its trend rate.' That marked the second downward revision of output growth for 2008 since the central bank began issuing quarterly economic updates in November.
In the initial report, the central bank lowered its output estimate by a three-quarter point to a 1.8-2.5% range.
The Fed said the 'considerably lower' forecast was due to a number of factors, 'including a further intensification of the housing market correction, tighter credit conditions amid increased concerns about credit quality and ongoing turmoil in financial markets, and higher oil prices.'
The central bank highlighted the uncertainty of the outlook and analysts pointed out that economic conditions were rapidly deteriorating.
The Fed said core inflation, excluding volatile energy and food prices, was expected to rise in a range of 2-2.2%, up from a previous estimate of 1.7-1.9%. The report coincided with crude-oil prices hitting record peaks above $101 as speculators were driven by supply fears.
Last night's forecast was the second quarterly economic update under a new policy implemented by Fed chairman Ben Bernanke to provide more timely views of the world's biggest economy.
The latest Fed GDP forecast was published with the minutes of the Federal Open Market Committee (FOMC)'s January 29-30 meeting, at which members trimmed a half point off the key federal funds interest rate, to 3%.
The Fed has cut 2.25 percentage points off the base rate since September amid financial market turmoil, including an emergency three-quarter-point cut on January 22.
Bernanke told a congressional hearing last week that a $168 billion economic stimulus law enacted earlier in February, which aims to boost consumer and business spending, would help lift growth later this year.
The minutes of the January Fed meeting showed that several members noted that 'the risks of a downturn in the economy were significant.'
'With no signs of stabilisation in the housing sector and with financial conditions not yet stabilised, the committee agreed that downside risks to growth would remain even after this action' to cut 50 basis points from the fed rate, the FOMC minutes said.
