WASHINGTON (Thomson Financial) - The ongoing credit crunch has forced Federal Reserve governors and reserve bank presidents to drastically cut their real GDP growth projections for the US economy in 2008, although they still expect growth to rebound by 2010 to roughly the same level as 2007.
In its first three-year economic forecast released today, the Fed slashed its forecast for real GDP growth in 2008 to 1.80-2.50 pct, down from its June estimate of 2.50-2.75 pct.
"These revisions to the 2008 outlook since June stemmed from a number of factors, including the tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices," the Fed said.
At the same time, the Fed cut its core inflation expectation for 2008 to 1.70-1.90 pct, down from 1.75-2.00 pct.
For the first time, the Fed made an estimate for headline inflation, which includes volatile food and energy prices that are removed from the core number. The Fed sees 2008 headline inflation at 1.80-2.10 pct.
Several economists and some Fed governors -- including Chairman Ben Bernanke himself -- have noted the increased risks that rising oil prices might pose to overall inflation, and some have said the Fed needs to add headline inflation to the data it monitors for this reason.
The Fed's specific expectations for GDP and inflation in 2008 are new, but largely in line with its more general pronouncements earlier this year that 2008 growth would be slower than 2007.
In its first three-year economic forecast released today, the Fed slashed its forecast for real GDP growth in 2008 to 1.80-2.50 pct, down from its June estimate of 2.50-2.75 pct.
"These revisions to the 2008 outlook since June stemmed from a number of factors, including the tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices," the Fed said.
At the same time, the Fed cut its core inflation expectation for 2008 to 1.70-1.90 pct, down from 1.75-2.00 pct.
For the first time, the Fed made an estimate for headline inflation, which includes volatile food and energy prices that are removed from the core number. The Fed sees 2008 headline inflation at 1.80-2.10 pct.
Several economists and some Fed governors -- including Chairman Ben Bernanke himself -- have noted the increased risks that rising oil prices might pose to overall inflation, and some have said the Fed needs to add headline inflation to the data it monitors for this reason.
The Fed's specific expectations for GDP and inflation in 2008 are new, but largely in line with its more general pronouncements earlier this year that 2008 growth would be slower than 2007.
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