WASHINGTON, Feb. 20, 2008
Fed Issues Gloomy Economic Forecast
Housing Slump, Inflation, Unemployment Prompt Central Bank To Lower Outlook For Growth
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Play CBS Video Video Costs Up, Profits Down From gas stations to grocery stores, prices are rising as inflation takes its toll across the nation. Bill Whitaker reports on what this means for the already struggling U.S. economy.
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The Federal Reserve has lowered its projection for economic growth this year, spurring fears that the economy could continue to weaken despite January's interest rate cuts, Wednesday, Feb. 20, 2008. (AP / CBS)
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Federal Reserve Board Chairman Ben Bernanke appears before the Senate Banking Committee on Capitol Hill in Washington, Thursday, Feb. 14, 2008, to discuss the state of the economy. The Fed has lowered its projection for economic growth this year, spurring fears that the economy could continue to weaken despite January's interest rate cuts, Wednesday, Feb. 20, 2008. (AP Photo/Dennis Cook)
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Timeline Credit Crunch Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
The updated forecasts come amid worry by Federal Reserve Chairman Ben Bernanke and his colleagues that the economy could continue to weaken, even after their aggressive interest rate cuts in January, according to minutes of those private deliberations released Wednesday.
"With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action," minutes of the Fed's Jan. 29-30 closed door meeting showed.
The Fed at that session voted to cut a key interest rate by one-half percentage point to 3 percent at that meeting. Just eight day earlier, the Fed, in an emergency session, slashed its rate by a rare three-quarters percentage point. The two rate cuts together marked the most dramatic rate reductions in a single month by the Fed in a quarter century.
Under its new economic forecast, the Fed said that it now believes the gross domestic product will grow between 1.3 percent and 2 percent this year. That's lower than a previous Fed forecast for growth, which at that time was estimated to be between 1.8 percent and 2.5 percent.
GDP is the value of all goods and services produced within the United States and is the best barometer of the country's economic fitness.
Grocer Gal Samrai didn't need today's numbers to know inflation is heating up; it's burning up his profit. The cost of stocking his shelves with food goes up one shipment to the next.
"It's unbelievable," Samrai told CBS News correspondent Bill Whitaker. "Lately we've taken really a big increase from a lot of the suppliers."
Whitaker reports that in the last two years, the cost of flour has soared 27%, eggs a whopping 50% and milk - up 26% from just a year ago.
And it's not just at the grocery store. Last month rents went up across the country, hospital costs jumped and so did clothing and gasoline. The national average for a gallon of unleaded is now $3.04 versus $2.29 a year ago.
In other economic developments:
The Fed said its revised forecasts reflected a number of factors including "a further intensification of the housing market correction, tighter credit conditions ... ongoing turmoil in financial markets and higher oil prices."
University of California, Irvine economist Peter Navarro told Whitaker that the combination of slower economic growth and increasing inflation could complicate the Fed's work.
"Not only does it hit the consumer in the pocketbook, but it makes it very, very difficult for the Federal Reserve to basically stimulate the economy out of recession," Navarro said, "because all that'll do is exacerbating the inflation. It's called 'stagflation'."
The central bank is trying to keep the economy growing, while ensuring that inflation stays under control. The Fed's remedy for a weakening economy is interest rate cuts. To combat inflation, the Fed usually boosts rates.
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Add a Comment See all 177 Comments
- ''Correct: How do you feel now that your assets are safe in the bank.
Posted by mcv57 at 06:39 PM : Feb 21, 2008''
Funny,that''s what people from Argentina said right before they started raiding their banks. - Reply to this comment
- So you''''re saying that the BLS has all in the sudden changed the way they''''ve measured unemployment for the last 40 years???? Posted by easeu
Nope, I am saying that at least for the past 40 years they have been lying. Check the numbers yourself, add them up. Any Detroiter who remembers the 70s and 80s can tell you how it felt to watch your family, friends, neighbors and yourself lose their homes and livelihoods while the presidents were all saying "the economy is great". - Reply to this comment
- Look at Ron Paul''s answer to this and you will understand how these things really work. The Fed is lying to the American people
- Reply to this comment
- Incorrect: Its does you how safe your assets are in the bank.
Correct: How do you feel now that your assets are safe in the bank. - Reply to this comment
- Hey, guess what I learned today.
Posted by mcv57
That you are an idiot? - Reply to this comment
- Hey, guess what I learned today. A Major Bank (Chase-Morgan) does not want to insure your safe deposit box; moreover, a Major Insurance company (USAA Insurance) does not want to insurance a bank safe deposit box neither. Its does you how safe your assets are in the bank.
- Reply to this comment
- The first rule of Fed forecasting is to be overly optimistic.
If the Fed says its bad, then the world is about to end.
Goodbye, America. - Reply to this comment
- Bush scores LOWEST presidential approval rating EVER!!!!
George W. Bush is NOW the most unpopular president in recorded american history. GWB is below the 20% mark....
According to the American Research Group
19% approve the way Bush 77% disapprove
is handling his job as president.
14% approve of Bush handling 79% disapprove
the economy.
GOD HELP US ALL................
is handling his job as president. - Reply to this comment
- You can be sure that whatever the corporate media reports for financial statisitcs, it is at least twice as high (inflation, unemployment, foreclosures, business and store closings).
Since consumers pretty much run the economy (and therefore could control the corporations and government if they organized), I think all this bad news is actually good.
I was advocating using consumer power before we got into this mess to change it for the good of the masses. Maybe people will listen and organize if they suffer enough financially. I don''t think they have suffered enough yet but we are getting closer. - Reply to this comment
- If he would have dropped the hammer HARD on them right after they took the hostages I would bet we wouldn''''t be talking about 9/11, Iraq, etc.
Posted by easeup
Too bad we''ll never know but as long as you''re theorizing think if you were one of the hostages at that time! - Reply to this comment
Author Thomas Friedman on Obama's Afghanistan plan and the war on terror.
