Fed lowers growth, raises unemployment forecasts

The Federal Reserve today lowered its growth forecasts and raised its unemployment projections, suggesting the economy has an even longer path to recovery than previously estimated. The central bank’s latest forecast predicts the economy will grow just 1.6% to 1.7% for all of 2011. For 2012, the Fed envisions growth ranging between 2.5% and 2.9%. Both forecasts are roughly a full percentage point lower than projections it made in June. The unemployment rate has been stuck near 9% for more than two years, and the Fed doesn’t see that changing this year. It predicts the rate will fall between 8.5% and 8.7% next year. In June, the Fed had predicted unemployment would drop next year to as low as 7.8%. The new forecast takes into account the substantial slowdown in growth that occurred earlier this year. On inflation, the Fed expects consumer prices will increase no more than 2.9% this year—also slightly worse than June’s forecast. That’s largely because of a spike in food and gas prices earlier this year. But the central bank does see inflationary pressures receding in 2012. It projects prices will rise between 1.4% and 2% next year. That’s within the Fed’s target range. It expects roughly the same inflation when stripping out food and energy prices. The government last week reported the economy grew at an annual rate of 2.5% in the July-September quarter, the best quarterly growth in a year. That was largely because consumers increased their spending at triple the rate from the previous quarter. Many economists believe the economy in the current October-December quarter is growing at a similar pace.