Federal Reserve: Unemployment to stay high

(CBS News) NEW YORK - We have been struggling through the weakest economic recovery the U.S. has seen. On Wednesday, the Federal Reserve projected more sluggish growth and high unemployment ahead. The Fed said its last forecast back in April was too optimistic.

The Fed's projection has changed for next year. It had expected growth in the economy to be as little as 2.7 percent. But on Wednesday, the Fed revised that down to as little 2.2 percent growth. In April, the Fed had also projected unemployment might stay as high as 7.7 percent-- it revised that up to 8.0 Wednesday.

The chairman of the Federal Reserve, Ben Bernanke, said he will try -- once again -- to jolt the economy out of neutral. The Fed moved to push interest rates already at record lows even lower. Bernanke wants to reduce borrowing costs for businesses and consumers to keep the economy from stalling again.

"Underlying all this, of course, is the fact that the outlook has changed," Bernanke said. "Like many other forecasters, the Federal Reserve was too optimistic early in the recovery."

Fed extends "Twist" program to spur growth

In lowering its forecasts for hiring, the Fed estimates the unemployment rate, now 8.2 percent, will have barely dropped by the end of this year -- and even two years from now, by the end of 2014, will have dropped less than a percentage point.

Watch MoneyWatch's report on the continuation of the Federal Reserve's bond-buying program dubbed "Operation Twist":

Job growth has slowed sharply in recent months, and a new survey of CEOs shows fewer companies plan to hire in the next half year. About 36 percent say they'll add workers, down from 42 percent in the last survey.

The financial crisis spreading through Europe, our biggest trading partner, has spooked both employers and the markets.

"I do think the European situation is slowing U.S. economic growth," said Bernanke.

Bernanke was asked what if the situation in Europe doesn't get better. "Well, we hope it doesn't get any worse," he said. "But we are prepared in case this gets worse to protect the U.S. economy and the U.S financial system."

The slowing global economy has helped push down oil prices, which have hit their lowest levels in six months. One leading analyst predicted the price of a gallon of gas could fall below $3 by the end of the year.

  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"