The central bank’s new economic projections show how quickly the nation’s economic outlook has deteriorated since the last Fed projections were made in April.
Gross domestic product will rise 2.7 to 2.9 percent this year, Fed officials now project, which is too slow to put Americans back to work in any large numbers. Two months ago, they thought growth would be just over 3 percent. In January, they saw growth approaching 4 percent.
The Federal Reserve has acknowledged that the economy is growing more slowly than it expected, but will complete its $600 billion Treasury bond buying program by June 30 as planned. (June 22)
Fed lowers expectations on economy
The long-term growth path for the economy is in the range of 2.5 to 2.8 percent, according to the Fed’s estimates, implying that growth this year will be fast enough to bring unemployment down only at a glacial pace.
That weaker 2011 growth is driven in part by temporary factors such as the run-up in oil prices over the first few months of the year and the supply disruptions caused by the Japanese earthquake. However, the adjustments the Fed made to its 2012 forecast show that the leaders of the central bank see a longer-lasting malaise.
Their 2012 forecasts, meanwhile, now show growth of 3.3 to 3.7 percent, compared with the 3.5 to 4.2 percent projected in April. The forecast for 2013, by contrast, is little changed.
The Fed projections have unemployment falling to somewhere between 7.8 and 8.2 percent, from the current 9.1 percent, by the fourth quarter of 2012, when the presidential election will be held.
Bernanke did give a bit of new clarity on what the Fed would do if the situation worsened — if the economy seemed to be falling back into recession or if deflation, a dangerous cycle of falling prices, became a risk.
“We’ll continue to look at the outlook and act as appropriately as the news comes in and the projections change,” Bernanke said. “We do have a number of ways of acting. None of them are without risks or costs.”
He mentioned several possible steps: making more purchases of securities, which would expand the money supply and put downward pressure on interest rates; cutting an interest rate that banks are paid for money they park at the Fed; or giving more specific promises for how long the Fed will keep its target interest low and its big balance sheet in place.
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