In a recent report issued by the Federal Reserve, officials inside the Fed now fear that the U.S. economy will take at least five or six years to fully recover from the biggest economic downturn since the Great Depression.
Fed officials at their June meeting cut their forecasts for economic growth this year and took a slightly dimmer view of the economy overall than they did in April. Fed officials concluded that the "economic outlook had softened somewhat". One-half of all Fed officials said they saw "risks to growth as having moved to the downside”.
Minutes of their June meeting, recently released stated that Fed officials expect that it will “take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation".
The report said that most Fed officials "expected the convergence process to take no more than five to six years". Fed officials also trimmed their forecasts for growth this year to a range of between 3 and 3.5 percent from the 3.2 to 3.7 percent they projected in May.
Fed Chairman Ben Bernanke and his colleagues did agree to hold key interest rate indices (Fed funds) at a record lows (near zero) to help revive the economy and repeated an earlier pledge to keep rates there for an "extended period".
Fed policymakers also said they didn't think the slowing in the economy seen so far warranted ‘new simulative actions’ besides those already in place. According to Reuters, the minutes show that Fed officials also revised down modestly their outlook for inflation. However, it was noted that more than a few participants were worried about a ‘dangerous deflationary spiral’ which is definitely a ‘turn-about’ when compared to reports earlier in the year when they were speaking of ‘winding down crisis-era supports’. However, no new specific programs or steps were mentioned nor agreed upon at the meeting.
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