U.S. Fed downgrades growth forecast this year

Published: 24/06/2011 05:00



The U.S. economy is expected to grow between 2.7 to 2.9 percent this year, a downward revision from the April forecast, which saw growth possibly at 3.1 to 3.3 percent, said the Federal Reserve in a statement on Wednesday.

U.S. Federal Reserve Chairman Ben Bernanke attends a press conference in Washington D.C., the United States, June 22, 2011.  (Xinhua/Lin Yu)

It is the third time that the Fed lowered its forecast of the U. S. economic growth this year.

In January, the central bank expected that the world largest economy’s output growth in 2011 would reach as high as 3.9 percent.

On the widely watched unemployment rate, currently at 9.1 percent, the Fed upgraded its forecast to between 8.6 percent and 8.9 percent. In its April forecast, the unemployment rate was expected to keep at 8.4 percent to 8.7 percent in 2011.

The downgraded revision is an acknowledgment that the economy has slowed, in part because consumers have been squeezed by higher gasoline prices.

The Fed also revised its projections of inflation, which is expected to grow between 2.3 percent and 2.5 percent in 2011. The prior estimate was between 2.1 percent and 2.8 percent.

The Fed estimates that “core” inflation, which excludes the volatile energy and cooking prices, will increase 1.5 percent to 1.8 percent. That’s slightly higher than its April forecast of an increase of 1.3 percent to 1.6 percent. The revised estimate is still within the Fed’s comfort zone for inflation.

“The slower pace of the 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,” said Ben Bernanke, Chairman of the Fed said at a press conference after the meeting of the Federal Open Market Committee (FOMC), the interest rate policy making body of the central bank.

He said that the slowdown is at least partly “temporary” and the economic growth might strengthen as the “transitory factors” wind down in the second half of this year.

Although the economic recovery is not strong enough, the Fed said it will complete its purchase of its 600 billion dollars longer-term Treasury securities as scheduled. The program, launched last November, aimed to help the economy grow more strongly and lower unemployment, which now stands at 9.1 percent.

The central bank also decided to keep the federal funds rate at the historic low level of zero to 0.25 percent, a policy that the Fed has been keeping since December 2008 after the burst of the financial crisis.

Moreover, the Fed said it will maintain its existing policy of reinvesting principal payments from its securities holdings, which is considered another instrument of easing monetary policy to stimulate the economy.


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