Fed expects weaker recovery

By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- The Federal Reserve has become more pessimistic about the economy.

The Fed's latest forecast, included in the minutes of the central bank's June 23 meeting released Wednesday, is the latest sign of growing concern that the recovery is losing steam.

Those worries led Fed policymakers to discuss what steps they might take to further spur economic activity "if the outlook were to worsen appreciably."

Only a few months ago, many economists thought the Fed would no longer need to consider moves to stimulate the economy. Instead, the Fed was expected to start worrying more about the possibility of inflation.

But the Fed now predicts the unemployment rate would be between 9.2% to 9.5% this year, slightly worse than the 9.1% to 9.5% range it forecast in April. Unemployment was 9.5% in June, but has averaged 9.7% over the first half of the year.

The Fed also lowered its outlook for the job market in the coming years. It now forecasts unemployment will stay between 8.3% to 8.7% next year, up from its earlier estimate of a range of 8.1% to 8.5%.

The central bank indicated it expects unemployment in 2012 to still be at a relatively high rate of between 7.1% and 7.5%. The Fed had previously said the unemployment rate could drop as low as 6.6% in 2012.

The Fed's outlook for the economy, as measured by the gross domestic product, was also cut. GDP is now projected to grow between 3.0% and 3.5% this year, down from an earlier forecast of 3.2% to 3.7%. In the first quarter, GDP rose at an annual rate of 2.7%.

The Fed expects the economy to grow between 3.5% and 4.2% next year, down from its earlier expectation of growth as much as 4.5%.

The central bank also trimmed its inflation outlook, an indication that it is unlikely to raise its key interest rates any time soon. The Fed left its overnight lending rate close to 0% at the meeting, where it has been since December 2008.

The Fed now expects so-called "core" prices, which strip out volatile food and energy costs, to rise only 0.8% to 1.0%. Typically the central bank is comfortable with core prices increasing between 1% and 2%.

But several policymakers even warned of deflation, the phenomenon of falling prices. That can be a bigger problem than inflation since it can lead businesses to cut production and jobs.

"A few participants cited some risk of deflation," according to the minutes, although there were also some policymakers still worried about inflation. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,265.99 109.14 0.64%
Nasdaq 4,593.43 31.24 0.68%
S&P 500 2,011.36 9.79 0.49%
Treasuries 2.63 0.03 1.12%
Data as of 6:11pm ET
Company Price Change % Change
Bank of America Corp... 17.04 0.27 1.61%
Yahoo! Inc 42.08 -0.50 -1.19%
Apple Inc 101.79 0.21 0.21%
Microsoft Corp 46.68 0.16 0.34%
General Electric Co 26.21 0.16 0.61%
Data as of 4:04pm ET

Sections

Alibaba officially secured its place in history as the largest U.S.-listed IPO of all time. The company will be worth $168 billion. More

The Federal Reserve is probably not going to raise interest rates until the summer of 2015 at the earliest. More

Immigrant entrepreneurs leverage connections abroad to boost international exports -- and non-immigrants could stand to learn from their tactics. More

Occupy Wall Street offshoot Strike Debt says it has abolished nearly $4 million in private student loan debt for students who attended Everest College, part of Corinthian Colleges. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.