Fed lowers outlook for economy through 2011

Fed lowers outlook for economy through 2011, citing worse than expected growth

Christopher S. Rugaber, AP Economics Writer, On Tuesday November 23, 2010, 2:40 pm EST

WASHINGTON (AP) -- Federal Reserve officials have become more pessimistic in their economic outlook through next year and have lowered their forecast for growth.

The economy will grow only 2.4 percent to 2.5 percent this year, Fed officials said Tuesday in an updated forecast. That's down sharply from a previous projection of 3 percent to 3.5 percent. Next year, the economy will expand by 3 percent to 3.6 percent, the Fed said, also much lower than its June forecast.

Fed officials project that unemployment won't change much this year, averaging between 9.5 percent and 9.7 percent. The current unemployment rate is 9.6 percent. Progress in reducing unemployment has been "disappointingly slow," the central bank said, according to the minutes of its Nov. 2-3 meeting.

The darker view helps explain why the Fed decided at its meeting earlier this month to launch another round of stimulus. The central bank plans to buy $600 billion in Treasury bonds over the next eight months in an effort to lower interest rates and spur more spending.

The Fed is slightly more optimistic about 2012, in part because officials expect the bond-buying program to have a positive impact. The economy should grow 3.6 percent to 4.5 percent that year, a tick better than June's forecast of 3.5 percent to 4.5 percent.

The economy will also grow 3.5 percent to 4.6 percent in 2013, the central bank said, the first time it has issued projections for that year.

The economic outlook was prepared at the Fed's meeting earlier this month and released Tuesday. It reflects the views of the Fed's board of governors and its regional bank presidents.

The jobless rate will be 8.9 percent to 9.1 percent in 2011, Fed officials predict. That's much worse than June's projection of 8.3 percent to 8.7 percent.

By 2012, when President Barack Obama faces the electorate, unemployment will be 7.7 percent to 8.2 percent, up from the previous forecast of 7.1 percent to 7.5 percent.

The Fed's forecasts of a slow economy with only gradual improvement in the job market are broadly similar to those by private economists. An Associated Press survey of 43 leading economists last month found that they expect the economy to expand just 2.7 percent in 2011, after growing only 2.6 percent this year.

The unemployment rate will remain at 9 percent by the end of 2011, the economists said.

The Fed said that data released since its last projections showed the economy was weaker in the first half of this year than it previously thought. The economy grew at only a 1.7 percent annual pace in the April-June period, much lower than the first quarter's 3.7 percent rate.

Consumers are still holding back on their spending, the central bank said, and recent reports on housing, manufacturing, international trade and employment were all weaker than expected at the June meeting.

The central bank expects prices will remain in check. Inflation is projected to rise 1.1 percent to 1.7 percent in 2011, little changed from the previous forecast of 1.1 percent to 1.6 percent.