The Federal Reserve last night sharply lowered its forecast for US economic growth in 2008.
The Fed said it was worried the economy could face further setbacks even after a series of aggressive interest rate cuts.
"With no signs of stabilisation in the housing sector and with financial conditions not yet stabilised, the committee agreed that downside risks to growth would remain even after this action," the Fed said in minutes of its January 29th to 30th meeting, when it cut rates by a half-percentage point.
The reduction brought benchmark rates to 3 per cent, and followed a three-quarter percentage point emergency rate cut at an unscheduled meeting of the policy-setting Federal Open Market Committee just eight days before.
The January rate-cutting spree was the most abrupt reduction in borrowing costs since the early 1980s. Minutes of the end-of-month meeting and two conference calls earlier in January showed policy-makers' mounting anxiety that financial market strains could lead to "an excessive pull-back" in credit availability and investment.
Fed officials agreed before the surprise January 22nd rate cut that decisive action was necessary to provide a jolt of confidence to shaken financial markets.
Citing a deepening housing slump and tight credit, the Fed lowered its economic growth forecast for 2008 to between 1.3 per cent and 2 per cent from a range of 1.8 per cent to 2.5 per cent it had projected in November.
It revised its 2008 inflation forecast to between 2.1 per cent and 2.4 per cent from 1.8 per cent to 2.1 per cent, and hiked its projection for core inflation, which strips out energy and food prices, to between 2 per cent and 2.2 per cent from 1.7 per cent to 1.9 per cent.