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WASHINGTON: The Federal Reserve on Wednesday sharply cut its outlook for the US economy for 2009, highlighting the potential for recession over the next year while leaving the door open for more rate cuts.
The latest forecast left a wide range of possibilities, suggesting the economy could grow as much as 1.1 percent or contract by 0.2 percent next year.
That compared with Fed forecasts published in July for gross domestic product (GDP) growth in a range of 2.0 to 2.8 percent for 2009.
Since then, a resurgence in the global financial crisis after the collapse of investment bank Lehman Brothers in mid-September has battered the world's biggest economy.
For all of 2008, the Fed estimated zero to 0.3 percent growth in US gross domestic product (GDP), down from its previous estimate of a 1.0 to 1.6 percent expansion.
A slow recovery was expected to produce a growth rate of 2.3 to 3.2 percent in 2010, the Fed said.
The forecasts were published along with the minutes of the last meeting of the Federal Open Market Committee on October 28-29, at which members agreed unanimously to slash the base lending rate a half-point to 1.0 percent.
"Participants noted that the financial turmoil had increasingly become an international phenomenon, leading to a marked deterioration in global growth prospects," the minutes said.
"Committee members agreed that significant easing in policy was warranted at this meeting in view of the marked deterioration in the economic outlook and anticipated reduction in inflation pressures.
"The recent substantial tightening in financial conditions, the sharp downshift in spending here and abroad, and the rapid abatement of upside inflation risks all suggested that a forceful policy response would be appropriate."
Even with the federal funds rate at a record low of 1.0 percent, some Fed members indicated the central bank could trim rates even more to help revive a moribund economy.
Some Fed members "suggested that additional policy easing could well be appropriate at future meetings," the minutes showed.
"In any event, the committee agreed that it would take whatever steps were necessary to support the recovery of the economy."
The minutes showed that some Fed members worried that rate cuts might not help revive economic activity because of "financial dislocations."
Some also noted that the committee "had limited room to lower its federal funds rate target further and should therefore consider moving slowly."
But others said these were reasons for acting more aggressively and would lower some borrowing costs.
The Fed meanwhile cut its inflation forecast for 2009 to a range of 1.3 to 2.0 percent, down from its earlier projection of 2.0 to 2.3 percent. - AFP/de
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