Fed lowers ‘08 growth forecast

WASHINGTON — Federal Reserve officials strongly suggested they won’t be inclined to cut interest rates further even as they sharply downgraded their forecast for economic growth this year, citing damage from a housing slump, credit crunch and galloping energy prices.

Wall Street took a tumble as investors faced the weaker outlook and the possibility that the Fed’s rate-cutting campaign was winding down. The Dow Jones industrials plunged more than 200 points.

In fact, the Fed’s decision to lower interest rates at its April 29-30 meeting was a “close call,” according to minutes of those private deliberations released Wednesday.

The Fed hopes that its series of powerful rate cuts ordered since last September and the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses will help energize growth somewhat in the second half of this year.

Fed officials viewed economic activity “as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of this year,” the documents stated.

The Fed also forecast higher unemployment and inflation for this year.

Given the hope of a second-half economic pickup but worried about inflation, Fed officials signaled last month that their one-quarter-point rate reduction, which dropped their key rate to 2 percent, might be their last rate cut for some time.

“Most members viewed the decision to reduce interest rates at this meeting as a close call,” the documents showed. “Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices.”

Many economists believe the Fed will hold its key rate steady when it meets next, on June 24-25.