Fed slashes US growth rate forecast

The Federal Reserve on Wednesday slashed its estimate for the economy's growth this year by a half point, and projected unemployment would be higher than it thought just two months ago.

The Fed projected gross domestic product would grow a maximum of 2.4 percent by the end of the year, and the jobless rate would rise to as high as 8.2 percent.

The central bank showed a more pessimistic view of the economy since its April 25 projections, when it put maximum GDP growth at 2.9 percent and showed the jobless rate falling to an upper-end 8.0 percent.

With the economy growing slowly and energy prices, especially crude oil and gasoline, on the downswing, inflationary pressures were lower than thought. The Fed cut its estimates for inflation to a range of 1.2 to 1.7 percent, compared with the April projection of 1.9 to 2.0 percent.

Core inflation, excluding food and energy prices, was seen as roughly stable, at 1.7 to 2.0 percent.

For the longer term, the Fed lowered its GDP growth readings for 2013 and 2015. Top growth for 2013 was estimated at 2.8 percent, down from 3.1 percent in April.

The revision was considerably smaller for 2014: top growth of 3.0 percent, a tenth point lower.

Unemployment was expected to fall more slowly than previously estimated, to a maximum rate of 8.0 percent in 2013 and 7.7 percent in 2014. In April, the top end was seen at 7.7 percent and 7.4 percent, respectively.

The latest estimates were released following a two-day meeting of the Federal Open Market Committee that left the Fed's key interest rate near zero, where it has been since December 2008 to stimulate growth.

Since the Fed's last meeting US unemployment has ticked up to 8.2 percent and the picture in Europe, particularly Spain, has grown bleaker.

Members of the Federal Open Market Committee (FOMC) acknowledged the grimmer outlook. "Growth in employment has slowed in recent months, and the unemployment rate remains elevated," the statement said.

"The committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually."