Fed downgrades economic forecast

WASHINGTON (AP) — The Federal Reserve on Wednesday sharply downgraded its projections for the country’s economic performance this year, predicting the economy will actually shrink and unemployment will rise higher.

Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7.1 and 7.6 percent.

Many private economists believe the jobless rate — currently at 7.6 percent, the highest in more than 16 years — will hit at least 9 percent by early next year even with the $787 billion stimulus package signed into law Tuesday by President Barack Obama.

The Fed also believes the economy will contract this year between 0.5 and 1.3 percent. The old forecast said the economy could shrink by 0.2 percent or expand by 1.1 percent.

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