WASHINGTON — The Federal Reserve on Wednesday lowered its projection for economic growth this year, citing damage from the double blows of a housing slump and credit crunch. It said it also expects higher unemployment and inflation.
The updated forecasts come at a time when Federal Reserve Chairman Ben Bernanke and his colleagues are concerned that the economy could continue to weaken, even after their aggressive interest-rate cuts in January, according to minutes of those private deliberations released Wednesday.
“With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action,” according to minutes of the Fed’s Jan. 29-30 closed-door meeting.
The Fed at that session voted to cut a key interest rate by one-half percentage point to 3 percent. Eight days earlier, the Fed, in an emergency session, slashed its rate by a rare three-quarters of a percentage point. The two rate cuts together marked the largest rate reduction in a single month by the Fed in a quarter century.
Under its new economic forecast, the Fed said it now believes gross domestic product will grow between 1.3 percent and 2 percent this year. That’s lower than a previous Fed forecast for growth, which at that time was estimated to be between 1.8 percent and 2.5 percent.
With economic growth slowing, the Fed projected that the national jobless rate will rise to between 5.2 percent and 5.3 percent this year. That is higher than the central bank’s old forecast for the rate to climb as high as 4.9 percent. Last year, the unemployment rate averaged 4.6 percent.
