The Federal Reserve today sharply downgraded its projections for the country’s economic performance this year, predicting the economy will actually shrink and unemployment will rise higher. Under the new projections, the unemployment rate will rise to between 8.5% and 8.8% this year. The old forecasts issued in mid-November predicted the jobless rate would rise to between 7.1% and 7.6%.
The Fed also believes the economy will contract this year between 0.5% and 1.3%. The old forecast said the economy could shrink by 0.2% or expand by 1.1%. The bleaker outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year. “Given the strength of the forces currently weighing on the economy,” Fed officials “generally expected that the recovery would be unusually gradual and prolonged,” according to documents on the Fed’s updated economic outlook.