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Federal Reserve downgrades forecasts for growth, employment

June 20, 2012|By Jim Puzzanghera

WASHINGTON -- The Federal Reserve on Wednesday sharply lowered its economic growth forecasts through 2014 and projected that unemployment could remain above 8% through next year.

The central bank released the new forecasts ahead of Chairman Ben S. Bernanke's quarterly news conference. Earlier, the Federal Open Market Committee voted to extend a program designed to lower long-term interest rates as it tries to respond to slowing growth in the U.S. and around world.

The program, called Operation Twist, was set to end on June 30 but now will continue through the end of the year as the Fed warned of a slowdown in the growth of jobs and household spending.

Growth in total economic output this year will be between 1.9% and 2.4%, much lower than the range of 2.4% to 2.9% the Fed projected in April. Growth will pick up in 2013, but the Fed's central tendency forecast is for 2.2% to 2.8% annual growth in gross domestic product, below the 2.7% to 3.1% forecast the central bank made in April.

Not until 2014 would annual growth top 3%, the Fed said. Annualized growth was 1.9% in the first quarter of this year.

The unemployment rate will be 8% to 8.2% in 2012, the Fed projected, little changed from May's rate of 8.2%. The Fed had forecast in April that unemployment this year would be 7.8% to 8%. Unemployment is forecast to be between 7.5% and 8% in 2013, higher than the 7.3% to 7.7% range forecast in April.

The Fed lowered its projection for inflation as the U.S. economic recovery has slowed. Inflation this year will range from 1.2% to 1.7%, down from the 1.9% to 2% projected in April.

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