Fed Signals Ready to Cut Rates Amid Glum Outlook

Federal Reserve officials have pared their outlook for economic growth through 2009 to minimal levels and are prepared to cut interest rates further, while concern has risen that a deflationary spiral may take hold.

The central bank expects growth in the United States to contract in the second half of 2008 and the first half of 2009, with some even were more pessimistic, according to minutes released on Wednesday of the Fed’s Oct. 28-29 meeting, when it cut its benchmark interest rate by a half percentage point to a percent.

“Even after today’s 50 basis-point action, the committee judged that downside risks to growth would remain,” the Fed said in the minutes.

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“Members anticipated that economic data over the upcoming inter-meeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings,” the U.S. central bank said in the minutes.

U.S. stocks plunged to their lowest closing level in five and a half years on Wednesday as investors braced for a lengthy downturn, including the possibility that U.S. automakers could collapse.

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David Coard, head of fixed-income sales and trading with The Williams Capital Group in New York, said the Fed’s comments painted a particularly glum picture.

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