Fed: Economy Stalling, Rate Cut Possible

Central Bank Sharply Lowers Projections For Economic Activity, Predicts Higher Unemployment

(AP)  The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century.

With the economy forecast to lose traction, or even jolt into reverse, unemployment will move higher, the Fed predicted.

Facing the likelihood of "significant weakness" in the economy, some Fed officials suggested "additional policy easing could well be appropriate at future meetings," according to documents from the Fed's most recent closed-door deliberations on interest rate policy at the end of October.

At that Oct. 29 session, the Fed ratcheted down rates to 1 percent, a level seen only once before in the last half-century. Many economists predict the Fed will lower rates again at its last meeting of the year on Dec. 16, to help brace the sinking economy.

Even while hinting that another rate reduction could be forthcoming, Fed officials worried that the effectiveness of previous rate cuts "may have been diminished by the financial dislocations, suggesting that further policy action might have limited efficacy in promoting a recovery in economic growth," the documents said.

To help ease financial turmoil and spur banks to lend money more freely again to customers, the Fed has taken a series of other unprecedented steps, including offering short-term cash loans and buying up mounds of short-term debt that companies rely on to pay day-to-day expenses like payrolls and supplies.

Under its new economic forecast, the Fed now believes gross domestic product could be flat or grow by just 0.3 percent this year. GDP could actually shrink by 0.2 percent or expand by 1.1 percent next year. Both sets of projections are lower than the Fed's forecasts delivered to Congress in July.

GDP is the value of value of all goods and services produced within the U.S. and is the best measure of the country's economic health.

The forecasts are based on what the Fed calls its "central tendencies," which exclude the three highest and three lowest forecasts made by Fed officials. The Fed also gives a range of all forecasts that showed some Fed officials projecting a 0.3 percent dip this year, followed by a deeper 1 percent contraction next year.

The economy "would remain very weak next year" and "the subsequent pace of recovery would be quite slow," according to the Fed documents.

The prospects for weaker economic activity will push up unemployment. The Fed projected that the national unemployment rate will rise to between 6.3 percent and 6.5 percent this year. The rate in October was 6.5 percent, and last year the rate averaged 4.6 percent.

Next year, the Fed expects the jobless rate to climb to between 7.1 percent and 7.6 percent — also higher than its summer forecast.

Inflation, meanwhile, is expected to be lower this year and next compared with the Fed's previous forecast. A global economic slowdown is sapping demand for energy, food and other commodities, driving down prices. That — along with stronger U.S. dollar — has reduced inflation risks, the Fed said.

The Fed now expects inflation to be between 2.8 percent and 3.1 percent this year. And, inflation should moderate further to between 1.3 percent and 2 percent next year. Both forecasts are lower than the projections made in the summer.

In minutes of the October meeting, the Fed said "more aggressive easing" in interest rates "should reduce the odds of a deflationary outcome."

Deflation is a prolonged and widespread decline in prices, something the U.S. hasn't seriously suffered through since the 1930s. Once established, it is hard for Fed policymakers to break. That's partly because the Fed can lower its key rate only so far — to zero — to combat it.

Earlier Wednesday, the government reported that consumer prices dropped 1 percent in October, the biggest monthly decline on records dating back to 1947. The sharp drop spurred concerns about the possibility — however remote right now — of deflation.

[wardoglrs]

Read Dr Paul''''s message and you will see the facts.
Google http://www.maxkeiser.com/

[doctxt]

10 YEARS AGO-ALL OVER THE NEWS-"PEOPLE HAD TO CHOOSE-MORTGAGE PAYMENTS OR GAS FOR CARS". THEY CHOSE GAS-THE MORTGAGE INDUSRTY CRUMBLED-FED SAYS SOME FAULTY PAPER AGREEMENT BETWEEN BANKS AND INVESTORS CAUSED IT-WHEN HIGHLY PAID FEDERAL ECONOMIC GURUS LOOKED THE OTHER WAY-OIL COMPANIES REAPED $60 TO $80 MILLION A YEAR (TIMES) 10 YEARS = $800 MILLION (ONE COMPANY ALONE)-NO WONDER THE %u201CFAILOUT PLAN%u201D IS NOT ENOUGH%u2026 WHATEVER IT IS, THE PEOPLE MUST NOW PAY FOR IT.

%u2019FAILOUT PLAN%u2019 IS SUPPOSED TO BAIL OUT ILLEGAL CITIZENS WHO BOUGHT %u2018AMERICAN%u2019 SOIL VIA FANNIE AND FREDDIE-THEY GOT BAILED OUT FIRST, THE PLAN IS NOW NOT WORKING FOR ANYONE ELSE%u2026

AFTER GOV%u2019T APPROVAL & MAE, MAC BAILOUT - GURUS CHANGE- WANT TO INVEST IN BANKS INSTEAD OF %u2018HELPING%u2019 PEOPLE-NOW THE GURUS ADMIT THE ECONOMY IS IN A %u2018SLOWDOWN%u2019.

PRICE OF OIL COMES DOWN, BUT CONSUMPTION NEVER CHANGED.

ABORTION IS OK, BUT THE BILL IS ON FUTURE GENERATIONS THAT WILL BE KILLED, AND THEY ROB THE RETIREMENT EGGS OF US ALL%u2026

THIS IS A BALANCED BUDGET-FOR THE GREEDY!

EQUATION OF THE DAY:

FED LENDS OUR $ TO BANKS FOR 1% (PLUS) WE BORROW FROM BANKS @ 10 TO 20% (PLUS) 8% TAXES (EQUALS) WE FOREVER LOSE (PLUS) FED & BANKS WIN (MINUS) TRUTH (EQUALS) DEPRESSION (TIMES) MORE LIES (EQUALS) POLITICIANS (PLUS) INVESTORS (DIVIDED BY) GREED (MINUS) LAW (MINUS) GOD (EQUALS) REVOLUTION!!!

[doctxt]

10 YEARS AGO-ALL OVER THE NEWS-"PEOPLE HAD TO CHOOSE-MORTGAGE PAYMENTS OR GAS FOR CARS". THEY CHOSE GAS-THE MORTGAGE INDUSRTY CRUMBLED-FED SAYS SOME FAULTY PAPER AGREEMENT BETWEEN BANKS AND INVESTORS CAUSED IT WHEN HIGHLY PAID FEDERAL ECONOMIC GURUS LOOKED THE OTHER WAY-OIL COMPANIES REAPED $60 TO $80 MILLION A YEAR (X) 10 YEARS = $800 MILLION %u2013 (ONE COMPANY ALONE)-THE %u201CFAILOUT PLAN%u201D IS NOT ENOUGH%u2026 WHATEVER IT IS, THE PEOPLE MUST NOW PAY FOR IT.

%u2018FAILOUT PLAN%u2019 IS SUPPOSED TO BAIL OUT ILLEGAL CITIZENS WHO BOUGHT %u2018US%u2019 SOIL VIA FANNIE AND FREDDIE-THEY GOT BAILED OUT FIRST, THE PLAN IS NOW NOT WORKING FOR ANYONE ELSE%u2026

AFTER GOV%u2019T APPROVAL & MAE, MAC BAILOUT - GURUS CHANGE, & WANT TO INVEST IN BANKS INSTEAD OF %u2018HELPING%u2019 PEOPLE %u2013 NOW THE GURUS ADMIT THE ECONOMY IS IN A %u2018SLOWDOWN%u2019.

PRICE OF OIL COMES DOWN, BUT CONSUMPTION NEVER CHANGED.

ABORTION IS OK, BUT THE BILL IS ON FUTURE GENERATIONS THAT WILL BE KILLED, AND THEY ROB THE RETIREMENT EGGS OF US ALL%u2026

THIS IS A BALANCED BUDGET %u2013 FOR THE GREEDY!

EQUATION OF THE DAY:

FED LENDS OUR $ TO BANKS FOR 1% (+) WE BORROW FROM BANKS @ 10 TO 20% ( ) 8% TAXES (=) WE FOREVER LOSE ( ) FED & BANKS WIN (-) TRUTH (=) DEPRESSION (X) MORE LIES (=) POLITICIANS ( ) INVESTORS (DIVIDED BY) GREED (-) LAW (-) GOD (=) REVOLUTION!!!

[pirmin3]

"Fed: Economy Stalling..."

Stalling??? I''d say it''s in reverse and the GOP dumped the clutch.

[andor3]

"If you you do not buy american you lose your job, your house and your foreign car. It does not get any easier than that. "

That is easy because it is not right. The real world is more complex. The concept of "buy American" means what? American owned companies? Made by American workers? Profits taxed by the USA?

[andor3]

Strangeworld: " Banks get money from the taxpayers at 1% and then borrow it back to the same taxpayers at 8,10, sometimes 27.99%. Somethings wrong with the picture here..."

Exactly! Credit available from banks only means people can take out more loans--which they do not want or need. To really help the economy, refinance all the credit card debt at 3% interest and tell the banks robbing consumers to take a hike. It is not so far-feteched--the Feds should just buy everyones credit card debt one-time. They could collect through taxes.

[strangeworld]

Why should the government continue to cut rates for banks...it''s essentially at 0% now. Banks get money from the taxpayers at 1% and then borrow it back to the same taxpayers at 8,10, sometimes 27.99%. Somethings wrong with the picture here...let''s eliminate the middle man. If the government is going to lend money, let them lend it to people for low rates and the hell with the banks. Maybe all those bankers can pick up trash on the sides of the highways after they get their walking papers.

[txgrouch2007]

If you you don''''t buy american you lose your job, your house and your foreign car. It doesn''''t get any easier than that. Real simple math even a 3 year old could handle...except an american 3 year old.
Posted by kuei12 at 06:32 PM : Nov 19, 2008

Or most members of Congress, either.

Wow, a lot of intelligent posts tonight. Where were you all when globalization was happening? Why weren''t we out with pitchforks and torches BEFORE all our jobs left the country (or got taken by H1B visa holders)?

Oh, yah, I remember. WE WERE TOO BUSY WORKING back then.

But NOW we have time to gripe about it on the internet.

Al Gore invented the internet, you know...

[txgrouch2007]

Until we find a way to even the playing field for our workers in this ridiculous global economy, we are doomed.

What a joke this free trade and the so called "global economy" is...
Posted by mortal3 at 06:01 PM : Nov 19, 2008

When you consider that Ross Perot warned about the "giant sucking sound" of jobs leaving the country, it''s NO JOKE.

It was an INTENTIONAL AND PRE-MEDITATED CRIME against the middle class.

No matter what the economic system is, the rich will always be rich and the poor will always be poor. But the middle class can be eliminated with the snap of the fingers.

SERFDOM, HERE WE COME.

[txgrouch2007]

Soon, interest rates will be with a minus sign: for anyone who succeeds in getting a loan, instead of having to pay money (interest) to have it, will receive more money. :-)
Posted by nfclrd at 06:33 PM : Nov 19, 2008

The Japanese have been doing that for years - only for big companies.

That''s why Toyota isn''t running out of cash next year.

[txgrouch2007]

It''''s time to tell the banks to start loaning the money or give it back they lied they are not doing what it was intended for.
Posted by rxzyu at 07:41 PM : Nov 19, 2008

NITWIT!!! They NEVER GOT THE MONEY!!!

Paulson DIVERTED THE MONEY to invest it in the stock market instead.

Paulson started nationalizing the economy, which is being continued now with the proposed auto industry "rescue" plan (which will nationalize that auto makers).

NOTHING Congress does is legal. Don''t expect them to spend the money as they promised to, even after they passed the bailout in the face of overwhelming public opposition.

Our government has become our enemy.

[mikezembill]

ObamBaboon i wish to hell you would quit talkin about McCain and Palin like this the republicans will think you are a mean spirited peice of dogshi! if you do not stop.

[mikezembill]

It''s time to tell the banks to start loaning the money or give it back they lied they are not doing what it was intended for.

[tincup356]

just remember folks it was the TWO party system that brought us the choice ...of this crook or that crook, take your pick,,,,we wont represent you either way.Your vote...worthless.....ten thousand lobby dollars...priceless when it comes to being represented.And while all the fools pointed fingers at each other.....the white collar , suit and tie terrorists made off with everything.

[ocasanas]

Soon, interest rates will be with a minus sign: for anyone who succeeds in getting a loan, instead of having to pay money (interest) to have it, will receive more money. :-)

[kuei12]

"Quick! Someone invent something that everyone needs and we''''''''ll actually manufacture it in the USA!!! How''''''''s THAT for a novel idea?"

Just about everything is invented in the usa. Americans are just too stupid to buy it from americans. They are too worried about spending 10% less at walmart. And now look. Because they bought all their cars and products from other countries america can''t sell anything so they have nothing to spend. It''s not rocket science america. If you you don''t buy american you lose your job, your house and your foreign car. It doesn''t get any easier than that. Real simple math even a 3 year old could handle...except an american 3 year old.

[noloyalisti]

The fascist in charge of the United States are just stalling the inevitable. Their right wing policies, championed by Reagan and brought to a climax by the Bush Crime Family are an utter failure. RIP Friedman and Norquist and Reagan.

[lloydbest1]

"The more people know about the US bailout efforts, the better. Unfortunately, the ignorant masses didn''''t elect a leader who will actually reform the Washington mess and instead were mislead by the liberal media lies and propaganda into going with a shallow, arrogant, platitude-spouting, inexperienced, drug-addicted, elitist, Marxist, narcissistic, flip-flopping gas-bag who is so mentally deficient from extensive drug use he even has to plagiarize his hollow platitudes. Thus, it will only get worse -- much, much worse."
Posted by ObamBaboon at 04:08 PM : Nov 19, 2008

Other than the "marxist" bit, that describes GWB to a tee!. OTOH, never in the history has our country has there been such blatant socialism for the wealthy as under this administration (not even under Regan) so even "marxist" may not be too far off.

[alabamajohn1]

Revolt and overthrow of the United States

First a record number of overpriced homes were sold to buyers who could not afford them, and this caused so many homes to be lost by foreclosure that the housing market crashed.

Then because secrecy and poor regulation had allowed the stock market and banks to go deep in debt on high risk ventures, all those empty homes caused a major recession, and many banks and finance corporations went bankrupt.

Comes now government to give 700 billion to the finance industry, and because of secrecy and no regulations to govern its use, it will soon disappeared forever.

And so if there is no change of heart, the banks and Wall Street will continue to dictate to government what they should do, everything will continue to be done in secret, no real investigation will be made, and our finance industry will strive for maximum profit no matter how harmful it may be to the economy.

Then government will give so much free money to large corporations, that our economy will completely collapse, government will go broke, and our money will be worthless.

Then the people, law enforcement and our military will unite to form an entirely new form of government.

[andor3]

these guys did not get the memo: the idea that the economy is tuned by tweaking interest rate has just failed in a pretty huge way.