The Federal Reserve announced Wednesday that it has cut expectations for economic performance in the United States, their analysts saying that a contraction of between 0.5 per cent and 1.3 per cent is expected in 2009.

The original prediction, in the middle of November 2008, called for a range between 0.2 per cent contraction and 1.1 per cent growth - a dramatic recovery from the end of 2008’s performance.

“Given the strength of the forces currently weighing on the economy we generally expected that the recovery would be unusually gradual and prolonged,” reports the Federal Reserve in their Summary of Economic Predictions (SEP), “The latest SEP, in addition to projections for 2009, 2010, and 2011, includes longer-run projections for output growth, unemployment, and inflation.”

The latest SEP reported what they believed to be very-long run sustainable growth of 2.5 to 2.7 per cent - forgiving any business cycle ups and downs, especially the current financial crisis - additionally the report suggested that FOMC members believed that unemployment as low as 4.8 per cent was possible to maintain.

Short-term however, the Fed’s new outlook was much more economically depressing, suggesting that the unemployment rate in the United States could hit up to 8.8 per cent this year, up from the previous forecast of 7.1-7.6 per cent. The U.S. central bank and other government statistics agencies compiled data suggesting that 3.6 million jobs have been lost since December 2007.

The Fed stressed the importance that this release was assuming no further shocks to the economy - if any unexpected problems were to arise, the situation could be much bleaker.

Interestingly, President Barack Obama’s stimulus package has been historically inconsistent, currently saying it will “save” a hard estimate of 3.5 million jobs over the course of it’s lifetime, slowly falling from the original estimate of 5 million and the future adjustments to 3 million, and then 3-4 million respectively. The real employment numbers sustained by this huge campaign will be seen as the plans begin unrolling.

Recovery.gov has been established for Americans to monitor the spending of stimulus dollars and hold the government accountable.

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