Thursday, February 21, 2008

Fed Sharply Reduces Forecast for Growth

WASHINGTON — The Federal Reserve, for all its power, faces tough new limits on its ability to keep the economy out of a recession this year.

Even as Fed officials ratchet down their forecasts, acknowledging that growth will be almost stagnant in the first six months of this year, investors are pushing up long-term interest rates and mortgage rates out of fears about bad debt and rising inflation.

On Wednesday, the central bank disclosed that Fed policy makers now expect the United States economy to expand between 1.3 percent and 2 percent in 2008. That would be the slowest growth in five years.

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