Fed Cuts 2012 Growth Outlook, Expects Unemployment Above 8.5%

Federal Reserve officials have lowered their outlook for U.S. economic growth in 2012 at a meeting of the FOMC this week, forecasting that unemployment will average between 8.5% and 8.7% in the final three months of next year.

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The forecasts were released after the FOMC acknowledged earlier today that economic growth has “strengthened somewhat” in the third quarter, though they also cited “continuing weakness” in labor markets and “significant downside risks” to the economic outlook.

The committee announced no new easing measures, and left its plans to lengthen the maturity of its bond portfolio and maintain its mortgage-backed securities investments unchanged. The Fed will keep interest rates in the range of zero to 0.25% through mid-2013.

The meeting of five Fed Board members and 12 reserve bank presidents resulted in a growth forecast of 2.5% to 2.9% in 2012, which will be measured from the fourth quarter of this year to the fourth quarter of next year. For this year, the Fed predicts U.S. gross domestic product will grow between 1.6% and 1.7%.

In June, Fed officials forecast economic growth of 2.7% to 2.9% for 2011. Today’s lower outlook represents the third consecutive downward revision this year. They also cut their 2012 outlook from a previous forecast of 3.3% to 3.7%.

The FOMC forecasts that inflation, measured by the personal consumption expenditures price index, will rise at a 1.4% to 2% rate in 2012, while their longer-run inflation goal ranges from 1.7% to 2%.

The Fed upwardly revised their previous unemployment forecasts. The Fed forecast in June that unemployment in 2012 would be between 7.8% and 8.2%. In 2013, the Fed expects unemployment to be 7.8% to 8.2% as well.

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The FOMC announced new policy measures in August and September without releasing any new details about their economic outlook. Fed officials review a staff forecast that isn’t made public before making any policy decisions. Before today, their most recent publicly released forecasts dated back to June.