In an announcement that is likely to deepen concerns over the U.S. economic woes the Federal Reserve has slashed growth and employment projections for 2011 and 2012.

Data projections released by the Fed suggested that it had revised a measure of the average, or “central tendency,” for the U.S. economy's 2011 gross domestic product growth rate from the 2.7-2.9 per cent range to the 1.6-1.7 per cent range. Similarly, the central bank cut its 2012 projection for growth from the 3.3-3.7 per cent range to the 2.5-2.9 per cent range.

Unemployment which in June the Fed projected would hover between 8.6 per cent and 8.9 per cent during 2011 was revised and projected to remain between 9 per cent and 9.1 per cent for the rest of the calendar year.

For 2012, the average unemployment rate was similarly revised upward from the 7.8-8.2 per cent range to the 8.5-8.7 per cent range.

Warning that many of the ongoing risks emanated from the continuing eurozone crisis Fed Chairman Ben Bernanke said in a press conference, “There are significant downside risks to the economic outlook, most notably concerns about European fiscal and banking issues [that] have contributed to strains in global financial markets, which have likely had adverse effects on confidence and growth.”

G20 meeting

The announcement by the Fed came on the eve of the G20 meeting in Cannes, France, this week, where world leaders from major economies will discuss strategies to stabilise the world economy and put the recovery back on a firmer footing.

Speaking ahead of the G20 meet, Angel Gurría, Secretary-General of the Organisation for Economic Cooperation and Development, said “Bold decisions are needed from the G20 leaders... to get the global economy back on track.” Mr. Gurria noted that an important first step had already been taken with the debt and banking crisis rescue plan announced by European Union leaders on October 26, but these measures must be implemented “promptly and forcefully”, he added.

Yet even as it issued these stark warnings the Fed ruled out any further actions such as interest rate cuts.

In a statement on the recent meeting of the rate-setting Federal Open Market Committee (FOMC) the Fed said that the FOMC had decided to keep the target range for the federal funds rate in the 0-0.25 per cent range.

Nine of the ten FOMC members, including Indian-American Narayana Kocherlakota, voted for holding rates at the same level, whereas one member, Charles Evans, was said to have supported additional policy accommodation at this time.

The Fed further said that it anticipated that economic conditions, including low rates of resource utilisation and a subdued outlook for inflation over the medium run, were likely to warrant “exceptionally low levels” for the federal funds rate at least through mid-2013.