Fed sharply cuts forecast for US economic growth

Published on NewsOK Modified: June 18, 2014 at 4:23 pm •  Published: June 18, 2014

WASHINGTON (AP) — The Federal Reserve has sharply cut its forecast for U.S. growth this year, reflecting a shrinking economy last quarter caused mostly by harsh weather.

At the same time, the Fed has barely increased its estimate of inflation despite signs that consumer price increases are picking up. Its benign inflation outlook suggests that the Fed doesn't feel rising pressure to raise short-term interest rates.

The Fed updated its economic forecasts Wednesday after a two-day policy meeting.

It expects growth to be just 2.1 percent to 2.3 percent this year, down from 2.8 percent to 3 percent in its last projections in March.

Given that analysts think the economy shrank at up to a 2 percent annual rate in the January-March quarter, the Fed's forecast implies that growth will top a healthy 3 percent rate over the final three quarters of 2014, economists noted.

The Fed thinks inflation will be a slight 1.5 percent to 1.7 percent by year's end, near its earlier estimate.

Still, more Fed members than in March expect the central bank's short-term rate to be 1 percent or higher by the end of 2015. That points to the prospect of more members advocating higher interest rates next year. Fed policymakers' average forecast for short-term rates in 2016 also edged up.

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