Fed Forecasts Slow Growth in 2008

Posted on Feb 20, 2008

Officials at the Federal Reserve are running out of creative ways to stave off a recession and expect the U.S. economy to slow to a crawl in 2008, with a growth rate of only 1.3 to 2 percent over the year.

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The New York Times:

Making matters more difficult, the Labor Department reported on Wednesday that consumer prices are rising faster than analysts had expected and faster than the central bank’s unofficial comfort zone.

Consumer prices jumped 4.3 percent in January, compared to one year earlier, the fastest year-over-year jump since September 2005. Excluding the volatile prices of energy and food, consumer prices climbed 2.5 percent lower, but still significantly above the Federal Reserve’s unofficial comfort zone of 1 to 2 percent.

That puts the Federal Reserve in a difficult position. On the one hand, officials are determined to do what it takes to keep the economy growing at a time when oil prices are surging, credit is tightening and major financial institutions are shell-shocked from the collapse of the housing and mortgage bubbles.

On the other hand, the fear of rising inflation makes it more difficult than ever for the Fed to jolt the economy with another wave of cheap money.

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