Fed fears 'contraction' in first half of 2008

Business News

Apr 8, 2008, 22:30 GMT

Washington - The Federal Reserve now believes a contraction of the US economy is likely in the first half of 2008, while some members fear a 'more severe and protracted downturn in activity,' according to the minutes of last month's board meeting released on Tuesday. Central bank officials expected growth to pick up slightly in the second half of 2008 and through 2009. The US central bank slashed its benchmark interest rate a further 0.75 percentage points to 2.25 per cent at the March 18 meeting. Fed Chairman Ben Bernanke last week for the first time acknowledged that a recession was 'possible' in the first half of 2008. The minutes from the March meeting did not specifically mention a recession, which is technically considered to be two straight quarters of negative growth. US economic growth slowed to an annualized 0.6 per cent in the fourth quarter of 2007 after climbing 3.9 per cent in the previous three months. The Fed has cut its key federal funds rate by 3 percentage points since September in response to a crisis in the mortgage sector, which has led to a tightening of lending conditions across the wider credit market. The International Monetary Fund on Tuesday said financial institutions could suffer losses as high as 945 billion dollars from the credit crisis. Falling home prices as well as surging oil and commodity prices have all led to a slowdown of the US economy, the Fed said.

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