by Vittorio Hernandez

The Federal Reserve reduced its forecast for the U.S. economy for 2011 and 2012 on Wednesday. For this year, the Fed estimates that the country's economy would expand from 2.7 to 2.9 percent only.

It is lower than the U.S. central bank's April forecast of a 3.1 to 3.3 percent rise in gross domestic product.

Fed Chairman Ben Bernanke attributed the lower outlook for the American economy to the impact of higher prices on consumer spending, weakness in the financial sector and the ongoing decline of the housing market.

But Bernanke added there is no precise explanation for the persistence of slower pace of growth, and admitted some of the head winds that hit the economy apparently are stronger or more persistent than officials thought.

Bernanke also warned that unemployment rate would continue to remain high until the end of 2011.

The Fed, in effect, took back its view that the economic slowdown was only temporary. However, despite the lower economic forecasts, the Fed said it will end by June 30, as scheduled, a program of purchasing large amounts of Treasury bonds and did not indicate if it will pursue new action.

Because of the weaker outlook, the central bank's Federal Open Market Committee, at its 22nd meeting, voted unanimously to keep key lending rates between 0 to 0.25 percent. The rate has been at that level since December 2008 in a bid to boost the country's GDP.

 

Federal Reserve Forecasts Weaker Growth for 2011 and 2012