US central bank officials expect contraction in early 2009

Business Materials 20 November 2008 00:34 (UTC +04:00)

US central bank officials believe the US economy will contract between now and mid-2009 and suggested more interest rate cuts could be necessary, according to the minutes of the Federal Reserve's October meeting that were released on Wednesday, dpa reported.

The minutes made no mention of a recession, though two straight contracting quarters is typically defined as a recession.

The projections represent a dramatic downward growth revision for the central bank as the ongoing financial crisis has sent the US economy into a nosedive since September.

For the whole of 2008, Fed members expected growth between 0 and 0.3 per cent, down from 1-1.6 per cent forecast in June. For 2009, projections ranged from a contraction of 0.2 to growth of 1.1 per cent, down from a range of 2-2.8 per cent predicted in June.

"Participants generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009," the minutes of the Fed's October 28-29 meeting read. Some members expected the slowdown to continue through most of 2009.

The Fed's benchmark federal funds rate was cut to 1 per cent at the board of governors' last meeting, the lowest rate since June 2004.

Some members "suggested that additional policy easing could well be appropriate at future meetings," the minutes said. The last time interest rates were below 1 per cent was in the 1950s.