Federal Reserve’s report shows much less growth

The Dow tumbled 227 points after the Fed’s report.

WASHINGTON (AP) — The Federal Reserve on Wednesday sharply lowered its projection for economic growth this year, citing blows from the housing and credit debacles along with zooming energy prices. It also expects higher unemployment and inflation.

Wall Street tumbled in response. But Fed officials, even with the more downbeat assessment, left the impression that they would not be inclined to cut interest rates further. The decision at the Fed’s last meeting on April 29-30 to reduce rates was a “close call,” according to minutes of those private deliberations released Wednesday.

The Fed hopes that its series of powerful rate cuts ordered since last September and the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses would help energize growth somewhat in the second half of this year.

Fed officials viewed economic activity “as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of this year,” the documents stated.

On Wall Street, the Dow Jones industrials plunged 227 points.

Given the hope of a second-half economic pickup but worried about inflation, Fed officials signaled last month that their one-quarter-point rate reduction, which dropped their key rate to 2 percent, might be their last rate cut for some time.

“Most members viewed the decision to reduce interest rates at this meeting as a close call,” the documents revealed. “Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices.”

Under its new economic forecast, the Fed said it now believes gross domestic product will grow between just 0.3 percent to 1.2 percent this year. That’s lower than a previous Fed forecast, released in late February, that estimated growth to be between 1.3 percent and 2 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.

These forecasts are based on what the Fed calls its “central tendencies,” which exclude the highest three forecasts and the lowest three forecasts made by Fed officials. The Fed also gives a range of all forecasts that showed for GDP some Fed officials projecting no growth in 2008.

With economic growth slowing, the Fed projected that the national unemployment rate will rise to between 5.5 percent and 5.7 percent this year.