Fed cuts US GDP forecast for 2007

BY

The US Federal Reserve today lowered the estimate for US GDP growth but left unchanged its forecast for a key measure of inflation.

It forecast that the price index for personal consumption expenditures excluding food and energy, core PCE, will stay at 2.00-2.25 pct, as previously predicted.
At the same time, it downgraded US real GDP growth forecast for 2007 to 2.50-3.00 pct from 3.00-3.25 pct previously.

The estimate for the unemployment rate, meanwhile, was lowered to 4.50-4.75 pct from 4.75-5.00 pct.

For 2008, US real GDP is estimated at 2.75-3.00 pct, the core PCE rate is seen at 1.75-2.00 pct and the unemployment rate is seen at 4.5-4.75 pct.

At the same time, Fed chief Ben Bernanke said in his testimony to Congress he sees some evidence that inflationary pressures are beginning to diminish and that the US appears to be making a transition to sustainable growth.

The latter is likely to be interpreted that the US economy will achieve a soft landing.

He also said the slowdown in the US housing market does not appear to spilling over to lower consumption.

However, Bernanke also noted the Fed is prepared to hike interest rates if developments in the economy warrant it.