Fed Officials Slash Outlook For Economy Through '09

Federal Reserve officials slashed economic growth forecasts through 2009 and hinted that further interest rate cuts may be needed if growth slows further, minutes of their October policy meeting show.

"Even after today's (half-point cut), the committee judged that downside risks to growth would remain," the Fed, the U.S. central bank, said in minutes released Wednesday.

"Members anticipated that economic data over the upcoming intermeeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings," the minutes of the Oct. 28-29 meeting said.

In an interview on CNBC shortly after the minutes were released, PIMCO's Bill Gross said he expected further rate cuts.

"The Fed Funds rate, at one percent, is still not low enough," Gross said. "And it means that...perhaps the Fed will have to begin to look at other measures besides lowering interest rates to 50 basis or zero to stimulate the economy."

"Government bailouts might calm credit markets, but common stock stockholders are holding an increasingly short stick," Gross added. "The money markets are looking increasingly more healthy. But the fact is that other markets—the longer-term credit markets, the corporate credit markets, commercial mortgages, high-yield bonds—they're all in disarray." (See interview with Bill Gross, left.)

The Fed lowered its forecast for 2008 gross domestic product growth to between zero and 1.3 percent from its June projection of 1.0 to 1.6 percent.

The economy could shrink by 0.2 percent in 2009, according to the lower range of the Fed's central tendencies forecast.

The Fed cut rates to 1 percent from 1.5 percent at its scheduled October meeting, after a surprise half-point cut Oct. 8 in coordination with major central banks around the world in an effort to stabilize financial markets.

It has taken the benchmark federal funds rate down 3.25 percentage points in six steps since the beginning of the year.

With expectations of growth ebbing, officials at the U.S. central bank pushed their unemployment projections sharply higher to between 6.3 and 6.5 percent for 2008 and between 7.1 and 7.6 percent next year.

Fed officials said they expect the economy to contract moderately in the second half of 2008 and the first half of 2009, and acknowledged that risks to growth had increased.

"While some expected an improving financial situation to contribute to a recovery in growth by mid-2009, others judged that the period of economic weakness could persist for some time," the Fed said.

—Reuters contributed to this report.

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