Wednesday, June 20, 2012

forecast for economic growth in 2012

The Federal Reserve has cut its forecast for economic growth in 2012 from 2.9% to 2.4%.

It has also predicted a central unemployment rate of up to 8.2%, having forecast up to 8% on 25 April.

The central bank also extended its programme of swapping short-term bonds for long-term ones, known as Operation Twist, until the end of the year.

The idea of the programme is to cut the long-term cost of borrowing for businesses and households.

The programme is worth $267bn (£170bn).

In a news conference, Federal Reserve chairman Ben Bernanke said unemployment was still too high and was going down too slowly.

"We are prepared to take further steps if necessary to promote sustainable growth and recovery in the labour market," he said.

The rise in the central prediction of the unemployment rate came after the jobless rate rose from 8.1% to 8.2% in April.

The Federal Reserve Monetary Policy Committee's decision on Operation Twist was not unanimous, with one of the 12 members voting against it.

Analysis Mark Mardell North America editor

The Fed's twisting in a chill economic wind. Its move is a reaction to its fairly gloomy assessment of the state of the US economy. It says the recovery in America is still happening, but it has slowed down, and what's going on in the rest of the world poses "significant risks".

So it's acting to keep long-term interest rates low, which it hopes will encourage people to spend and businesses to take on more workers. It's the extension of a policy that began last September and the jury is out on whether it has worked so far.

In the current political environment the Fed is the only actor with a role. Even if there wasn't a presidential election looming, Congress would still be deadlocked and neither Democratic nor Republican plans stand a chance of being turned into reality. The Fed could print more money (or the modern equivalent) but that would be hugely politically controversial. The bottom line is it's not doing much, but it's the only one doing anything to prop up a faltering recovery.

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