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| Version 2 | Version 3 |
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| US Fed slashes growth forecasts | |
| (about 6 hours later) | |
| The US Federal Reserve has slashed its growth forecast for the US economy and raised its forecast for unemployment. | |
| The Fed cut its growth forecast for this year by half a percent to a new range of between 1.3% and 2%. | |
| The US central bank also said the jobless rate could be as high as 5.3% by the end of the year. | |
| The gloomy outlook was blamed on falling house prices, reduced bank lending, turmoil in the financial markets and higher oil prices. | |
| Rising inflation | |
| The report was released with minutes of interest rate meetings held at the US Federal Reserve last month. | |
| In those minutes, officials said that interest rates would have to be "relatively low" for some time. | |
| But policy makers will have to watch rising inflation. | |
| A report out on Wednesday showed that consumer prices are heading higher. | |
| US consumer prices rose by 0.4% in January, more than many analysts had forecast. | |
| According to the US Labor Department, the main drivers of the price growth were food and energy costs. | According to the US Labor Department, the main drivers of the price growth were food and energy costs. |
| Analysts say that inflation concerns may hamper the Fed when it comes to cutting rates again in the future. | Analysts say that inflation concerns may hamper the Fed when it comes to cutting rates again in the future. |
| Housing market | Housing market |
| Separate data showed that the US housing market was still experiencing problems, with construction indicators hovering near their lowest levels since 1991. | Separate data showed that the US housing market was still experiencing problems, with construction indicators hovering near their lowest levels since 1991. |
| Housing continues to be an area that will act as a drag on the economy going forward here Kevin Flanagan, Morgan Stanley | Housing continues to be an area that will act as a drag on the economy going forward here Kevin Flanagan, Morgan Stanley |
| According to the Commerce Department, applications for building permits fell by 3% to 1.048 million units. | According to the Commerce Department, applications for building permits fell by 3% to 1.048 million units. |
| Analysts said that disappointing figure offset an increase in housing starts, which rose by 0.8% in January. | Analysts said that disappointing figure offset an increase in housing starts, which rose by 0.8% in January. |
| That was the first increase since October and followed a plunge of 14.8% in December. | That was the first increase since October and followed a plunge of 14.8% in December. |
| An increase of unsold homes and mounting mortgage defaults will probably weigh on the housing market and the wider economy, analysts said. | An increase of unsold homes and mounting mortgage defaults will probably weigh on the housing market and the wider economy, analysts said. |
| "Housing continues to be an area that will act as a drag on the economy going forward," said Kevin Flanagan of Morgan Stanley. | "Housing continues to be an area that will act as a drag on the economy going forward," said Kevin Flanagan of Morgan Stanley. |
| Stagflation fears | Stagflation fears |
| The Fed cut interest rates twice in January to 3% in an attempt to boost the economy, which has been dragged down by the collapse in the US housing market. | The Fed cut interest rates twice in January to 3% in an attempt to boost the economy, which has been dragged down by the collapse in the US housing market. |
| Neil Mellor at Bank of New York Mellon said the inflation data could raise fresh fears of stagflation - rising prices and stagnant growth. | Neil Mellor at Bank of New York Mellon said the inflation data could raise fresh fears of stagflation - rising prices and stagnant growth. |
| "The data ostensibly pose a dilemma [for the Fed]," Mr Mellor said. | "The data ostensibly pose a dilemma [for the Fed]," Mr Mellor said. |
| "We strongly suspect, however, that the figures are unlikely to deter [the Fed] from cutting interest rates further." | "We strongly suspect, however, that the figures are unlikely to deter [the Fed] from cutting interest rates further." |