The US Federal Reserve cut its forecast for the US economy for the current year on Wednesday. As a result, the US markets ended flat, inspite of a positive opening on the back of President Barack Obama’s new $75 billion plan to fight the housing crisis.
Earlier in the day, Obama said the plan - called the Homeowner Stability Initiative - would help nine million homeowners stave off home loan foreclosures.
Outlook: bleak
The Fed slashed its 2009 outlook and said that the economy will contract between 0.5 and 1.3 per cent.
The Fed also added that the unemployment rate is projected to rise to stand between 8.5 per cent and 8.8 per cent.
Inflation target: low
The Fed also set an inflation target of 2 per cent. “At this point with global economy activity being weak and commodity prices being at lower levels, we see little risk of unacceptably high inflation in the near term,” Ben Bernanke, Chairman of the US Federal Reserve, said. “We expect inflation to be quite low for sometime.”
Road ahead for banking sector
Bernanke said the Obama administration was committed to try and return banks ‘to private hands’ as quickly as possible, even if there arose a need for nationalisation. “It is very challenging for governments to manage banks for long periods. Even a government-run institution tends to lose the franchise value when the counter parties and others don’t want to deal with, as the future is uncertain,” he said.
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