The US Federal Reserve has slashed its US growth forecast for next year, according to estimates published tonight, as it predicted higher than expected unemployment.
It said it expected growth next year in a range of 3% to 3.6%, compared with 3.5% to 4.2% in June. It expected unemployment to be around 9%, up from its previous forecast of around 8.5%.
Minutes of its last meeting showed that the Fed considered even more drastic options to stimulate the economy before it settled on buying $600 billion in bonds.
Most participants in the Federal Open Market Committee, the Fed's policy-setting arm, backed the plan to ramp up asset purchases in an effort to bring down long-term interest rates and try to nudge economic activity up a notch.
But not all Fed officials believed the new policy, which has raised controversy both at home and abroad, would help lift the economy out of its doldrums. In fact, 'several' participants believed a further increase in Fed credit to the banking system, already around $2.3 trillion following an array of emergency measures undertaken during the financial crisis, risked future inflation.
US third quarter was better than estimated
Earlier, US government figures show that the country's economy grew more quickly than previously estimated in the third quarter of this year.
Gross domestic product growth was revised up to an annualised rate of 2.5% from 2% as exports, and consumer and government spending were stronger than initially thought, the Commerce Department said in its second estimate.
Economists had expected GDP growth, which measures total goods and services output within US borders, to be revised up to 2.4%. The economy expanded at a 1.7% annual rate in the second quarter.
There are signs that activity picked up mildly as the fourth quarter started, but growth is likely to remain below the 3.5% rate economists say is needed to reduce a 9.6% unemployment rate.
Concerns about the slow growth pace spurred the Federal Reserve early this month to ease monetary policy further through controversial purchases of $600 billion worth of government bonds to drive ultra-low interest rates even lower.
The US government revised third-quarter growth to reflect stronger consumer, government and business spending. Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.8% annual rate in the July-September period instead of 2.6%.
Government spending increased at a 4% rate rather than 3.4%, due to an upward revision in state and local spending. Business investment was a touch higher than initially estimated, lifted by much stronger spending on equipment and software, though structures were weak. Business spending increased at a 10.3% rate instead of 9.7%, though this was still down from the second quarter's brisk 17.2% rate.
Revisions to third-quarter GDP growth also reflected import growth that was not as big as initially thought, while exports were a bit stronger.
Separate figures showed that sales of existing US homes fell 2.2% to a seasonally adjusted 4.43 million unit rate in October, worse than economists' expectations for a 1% drop. Housing remains one of the weak spots in the US economy as it recovers from the worst recession since the 1930s.
