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Federal Reserve lowers economic growth projections for 2012

September 13, 2012|By Jim Puzzanghera and Don Lee
  • A television monitor on the floor of the New York Stock Exchange flashes the news of the latest moves by the Federal Reserve to stimulate the economy on Thursday.
A television monitor on the floor of the New York Stock Exchange flashes… (Richard Drew / Associated…)

WASHINGTON -- The Federal Reserve on Thursday slightly lowered its forecast for economic growth this year, reflecting the still-struggling recovery and helping to justify the decision to launch another round of stimulus.

The central bank's new forecast, released before Fed Chairman Ben S. Bernanke's quarterly news conference, doesn't make drastic changes from its June projections. 

But it still lowered growth in the nation's gross domestic product, calling for a weak 1.7% to 2% increase this year. Back in June, most Fed officials had seen growth as high as 2.4% for 2012.

The downgrade reflected the sluggish economic activity in the first half of this year. GDP growth of less than 2% isn't strong enough to substantially lower the unemployment rate.

The Fed stuck to its forecast that the jobless rate will be at 8% to 8.2% at the end of 2012 -- about where it's been all year. It dropped to 8.1% from 8.2% in August, but largely because more people stopped looking for work. Just 96,000 new jobs were added to the economy last month.

The Fed doesn't see unemployment falling to near 6% until late 2015. Inflation also is expected to stay at or below its 2% target until at least 2015.

Given these new projections, the vast majority of Fed policymakers now see 2015 as the appropriate time to start tightening monetary policy. That is consistent with the new guidance issued Thursday that the central bank will keep rates at rock-bottom levels until mid-2015.

In addition to extending the period for near-zero interest rates, the Federal Open Market Committee said Thursday it would begin another round of bond-buying to try to boost economic growth.

The Fed will purchase $40 billion in mortgage-backed securities until the outlook for the labor market improves substantially. The open-ended commitment was more forceful than many analysts had expected and spurred the Dow Jones industrial average to shoot up about 150 points.

US Real GDP Growth Chart

GDP growth data by YCharts

ALSO:

Fed, worried about job growth, launches new stimulus

Jobless claims jumped last week, adding more fuel for Fed action

U.S. adds disappointing 96,000 jobs; August unemployment rate at 8.1%

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