Fed's economic outlook dims

The U.S. central bank is taking a dimmer view of the American economy, predicting at a recent meeting that it will expand by less than previously anticipated.

In the minutes of its June 22-23 meeting, released Wednesday, members of the Federal Reserve board lowered its economic forecast to a range of between 3.0 and 3.5 per cent.

That's less than the 3.2 to 3.7 per cent range the Fed was projecting at its previous policy session in May.

The Fed members meet every six weeks to discuss policy, and the minutes of those meetings are posted on the group's website three weeks after their interest rate decisions are announced.

Among the concerns are the spiralling European debt crisis and how it might affect the U.S. economy. The lowered forecast reflects "economic developments abroad," the group said in a veiled reference to the issue.

Gloomier outlook

The group doesn't see much improvement in the labour market either. It forecasts the unemployment rate, currently at 9.5 per cent, to hover at that level or possibly lower to no less than 9.2 per cent this year. In April, the Fed had a lower floor for the unemployment rate at 9.1 per cent.

With the downgrades, in key areas the Fed's views are now as pessimistic as they were in January.

While reducing the forecast for growth and employment, the Fed also amended its inflation forecast. Prices will rise from between 1.0 and 1.1 per cent this year, it predicted, down from a previous estimate of 1.2 per cent to 1.5 per cent.

Lower inflation should give the U.S. central bank more wiggle room to keep rates low and keep stimulating the moribund domestic economy.

The Fed may "consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," the minutes read.