US Fed lowers outlook for growth for next two years

11 July 2012 20:40  [Source: ICIS news]

WASHINGTON (ICIS)--Federal Reserve Board governors and economists on Wednesday lowered their outlook for US economic growth for the next two years and raised their projections for the nation’s unemployment rate through the end of 2014.

In releasing the minutes of the Fed’s 20 June rate-setting committee meeting, the central bank said that its top officials and staff economists agreed to lower their expectations for US gross domestic product (GDP) growth for this year to somewhere between 1.9% and 2.4%.

In their April meeting, the Fed’s economic staff had forecast a slightly higher GDP growth rate of at least 2% for this year.

The Fed said the reason for the lower outlook for the economy was due to worsening data on consumer spending and employment.

“In addition, most [staff economists] noted that the worsening situation in Europe was leading to a slowdown in global economic growth and greater volatility in financial markets,” the minutes said.

In addition to lowering projected GDP growth for this year, the Fed governors and staff also reduced their estimate for 2013 GDP to a range of 2.2% to 2.8%, and for 2014 to 3% to 3.5%.

In normal economic times, economists say that the US economy should grow at what is called a trend pace of 3% to 3.5%. 

Consequently, the Fed anticipates that the US will not see normal growth until 2014 at the earliest.

The central bank officials also revised upward their estimate of US unemployment going forward, saying the jobless rate would likely hold in the 8% to 8.2% range for full-year 2012 instead of slipping into the upper ranges of 7%.

The US unemployment rate eased up to 8.2% in May from April’s reading of 8.1% and held at 8.2% in the most recent jobs report for June.

For 2013, the minutes project a consensus of 7.5% to 8% unemployment, not dropping to near 7% until the end of 2014.

What economists consider normal unemployment levels would be around or below 5%.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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