The Federal Reserve slashed its 2008 growth forecast for the US economy to a range of 0.3 to 1.2 percent, and signaled new rate cuts are unlikely unless there is a "significant weakening" of the outlook, documents released Wednesday showed.
The US central bank made a sharp downward revision to its prior forecast of 1.3 to 2.0 percent growth for 2008 in an economic update accompanying the minutes from its April 29-30 policy meeting.
At that meeting, the Fed led by chairman Ben Bernanke voted 8-2 to cuts the federal funds base lending rate by a quarter point to 2.0 percent.
But the panel stated that "it was no longer appropriate for the statement to emphasize the downside risks to growth," according to the minutes.
The minutes also said that "several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook."
The document suggested that the decision on cutting the rate was a close call.
"Participants stressed the difficulty of gauging the appropriate stance of policy in current circumstances," the minutes showed.
"Even taking account of current financial headwinds, such a low rate could suggest that policy was reasonably accommodative. However, other participants observed that the pronounced strains in banking and financial markets imparted much greater uncertainty to such assessments and meant that measures of the stance of policy based on the real federal funds rate were not likely to provide a reliable guide in the current environment."
The updated economic forecast meanwhile projected a rise in the unemployment rate to a range of 5.5 to 5.7 percent this year.
Inflation also was expected to pick up to 3.1 to 3.4 percent, up from a prior projection of 2.1 percent to 2.4 percent, largely due to surging energy costs. But the outlook for core inflation, excluding food and energy, was revised up only by 0.2 points to a range of 2.2 to 2.4 percent.
The new outlook, part of the Fed's new policy for more frequent updates, was roughly in line with many private economist forecasts for sluggish growth which would put the world's biggest economy on the brink of recession.
"Participants viewed activity as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year," the statement said.
"Incoming data on spending and employment already indicated a softening economy this year. Real incomes were being held down by higher oil prices; falling house prices had reduced household wealth; and households and businesses were facing tighter credit conditions."
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