US Fed cuts growth estimate by 1%

Ben Bernanke, the Fed chairman, has one eye on inflation risks

The US Federal Reserve has cut its 2008 growth forecast for the US economy and predicted that unemployment will rise more than it had previously expected.

The Fed cut its growth forecast for this year by to a new range of between 0.3% and 1.2%, down from the 1.3% to 2% predicted in February.

The US central bank also said the jobless rate could reach 5.7%.

But further interest rate cuts seem unlikely as the Fed focused on the persistent threat of higher inflation.

The gloomy outlook came in minutes from the Fed's last meeting when interest rates were cut to 2% from 2.25%.

Fed officials viewed this decision as a "close call" according to minutes from that meeting.

"Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices," the Fed said.

Wall Street shares tumbled after the report with the benchmark Dow Jones falling 227.5 points, or 1.7%, to 12,601.2, while the dollar also sank against the euro and the Japanese yen.