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Montevideo, March 28th 2024 - 09:53 UTC

 

 

Fed forecasts less US growth and higher unemployment

Thursday, February 21st 2008 - 21:00 UTC
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The US Federal Reserve has slashed its growth forecast for the US economy and raised its forecast for unemployment. The Fed cut its growth forecast for this year by half a percent to a new range of between 1.3% and 2%. The US central bank also said the jobless rate could be as high as 5.3% by the end of the year.

The gloomy outlook was blamed on falling house prices, reduced bank lending, turmoil in the financial markets and higher oil prices. The report was released with minutes of interest rate meetings held at the US Federal Reserve last month. In those minutes, officials said that interest rates would have to be "relatively low" for some time. But policy makers will have to watch rising inflation. A report out on Wednesday showed that consumer prices are heading higher. US consumer prices rose by 0.4% in January, more than many analysts had forecast. According to the US Labor Department, the main drivers of the price growth were food and energy costs. Analysts say that inflation concerns may hamper the Fed when it comes to cutting rates again in the future. Fed inflation estimates for 2008 now stand between 2 and 2.2% (excluding energy and food), from the previous 1.7 to 1.9%. The new percentages have been motivated in part "by the net acceleration of oil prices". Separate data showed that the US housing market was still experiencing problems, with construction indicators hovering near their lowest levels since 1991. According to the Commerce Department, applications for building permits fell by 3% to 1.048 million units. Analysts said that disappointing figure offset an increase in housing starts, which rose by 0.8% in January. That was the first increase since October and followed a plunge of 14.8% in December. An increase of unsold homes and mounting mortgage defaults will probably weigh on the housing market and the wider economy, analysts said. The Fed cut interest rates twice in January to 3% in an attempt to boost the economy, which has been dragged down by the collapse in the US housing market. Following on the Fed's lower growth forecast oil prices closed at a record in New York for the second day in a row. The main contract for light sweet crude closed at 100.74 US dollar a barrel, up 73 cents. At one stage during the session it rose as high as 101.32 per barrel. Traders again blamed worries that the Opec oil producing nations might announce production cuts at their meeting on 5 March.

Categories: Economy, United States.

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