Few bright spots in Fed's new outlook

U.S. growth to slow in 2008; Bernanke faces new pressure to cut key interest rate in December

The U.S. Federal Reserve Board has unveiled its most expansive forecast ever, and the prognosis isn't good.

The U.S. economy is likely to grow just 1.8 to 2.5 per cent next year, and will gather steam only modestly in 2009 and 2010, according to the forecast, which was released yesterday along with minutes from the central bank's Oct. 30-31 meeting.

The forecast is down markedly from its last one in June, and the Fed warned ominously that key risks could make things much worse - a more severe credit crunch, an even deeper housing slump and continued financial market turmoil.

"Most participants judged that the uncertainty attending their October projections for real GDP growth was above typical levels seen in the past," the Fed said.

Fed officials also predicted tamer inflation for 2008 (1.8 to 2.1 per cent) and higher unemployment (4.8 to 4.9 per cent) than they forecast in June.

And that adds up to an increased likelihood of another rate cut when the Fed interest rate policy committee meets again Dec. 11.

"The latest forecast leaves the door wide open for additional interest rate cuts," said economist Ryan Sweet of Moody's Economy.com.

Trading in federal funds futures now puts the odds of a December rate cut at more than 90 per cent.

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