U.S. Economy May Shrink 1.5% in 2009 as Recession Stymies Fed

Economists slashed forecasts for U.S. growth in 2009 and projected Federal Reserve policy makers won’t be able to start raising interest rates until 2010, according to a monthly Bloomberg News survey.

The world’s largest economy will contract 1.5 percent this year, a half percentage point more than projected last month, according to the median of 59 forecasts in the survey taken from Jan. 5 to Jan. 12. The slump will push inflation below what some Fed officials consider price stability, the survey showed.

“It’s very hard to get anything into place to change the course of the economy in the first half of this year,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “We’re in the middle of something very deep here.”

How quickly the U.S. will pull out of the slide may depend on the $775 billion stimulus package that President-elect Barack Obama is pushing lawmakers to enact next month. The projections indicate he’ll be seeking to halt what may be the longest recession since World War II.

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“This is a once-in-a-century crisis, and we’re about to see a once-in-a-century response,” said Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York. “We could be in for a wild ride” depending on the timing and size of the stimulus, he said.

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Quarterly Forecasts

Gross domestic product dropped at a 5 percent annual pace in the last three months of 2008 and will contract 3 percent this quarter, with a 0.8 percent drop in the next three months, according to the survey median. All estimates were lower than in the previous monthly survey.

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