Fed sees economy slowdown in 2008

The Federal Reserve said that the decision to cut a key interest rate last month was a "close call," according to minutes from that meeting released Tuesday.
But in a new economic outlook, the central bank also lowered its growth target for the economy in 2008, raising hopes that the Fed will cut rates again when it meets in December.
The Fed indicated in an addendum to its minutes that it now expects the economy to grow at about a 1.8 percent to 2.5 percent rate next year, down from a forecast in June of 2.5 percent to 2.75 percent growth.
"I am surprised that their forecast for next year is as low as it is," said David Resler, chief economist of Nomura Securities International Inc. "The forecast is considerably weaker than it had been and that is the most significant development in this report."
And while Resler said he does not think a rate cut at the Fed's next meeting on Dec. 11 is a foregone conclusion, he thinks it is more likely now given what the Fed thinks about the prospects for the economy in 2008.
To that end, according to the most recent price of futures listed on the Chicago Board of Trade, investors are pricing in a 92 percent probability that the Fed will lower its key federal funds future rate by a quarter of a point to 4.25 percent on Dec. 11.
The federal funds rate is an overnight bank lending rate that influences how much interest consumers pay for credit card borrowings, home equity lines of credit and auto loans.
In its forecast, the Fed cited "tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices" as the main reason for revising its projections downward.
Since the Fed last cut rates on Oct. 31, several large financial services companies - including Citigroup, Merrill Lynch , Washington Mutual and Bank of America have reported writedowns due to the subprime mortgage crisis.
And both Fannie Mae and Freddie Mac government-sponsored enterprises that help provide financing to the mortgage market, reported weak third quarter results.
Shares of Freddie Mac plunged more than 30 percent Tuesday after the company announced a quarterly loss and said it may have to cut its dividend due to concerns about its capital