Fed cuts growth forecast and warns of downside risks

The Federal Reserve on Wednesday sharply lowered its forecast for economic growth in 2008 and said it was worried the economy could face further setbacks even after a series of aggressive interest rate cuts.

"With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action," the Fed said in minutes of its January 29-30 meeting, when it cut rates by a half-percentage point.

The reduction brought benchmark rates to 3 percent, and followed a bold three-quarter percentage point emergency rate cut at an unscheduled meeting of the policy-setting Federal Open Market Committee just eight days before.

The January rate-cutting spree was the most abrupt reduction in borrowing costs since the early 1980s. Minutes of the end-of-month meeting and two conference calls earlier in January showed policy-makers' mounting anxiety that financial market strains could lead to "an excessive pull-back" in credit availability and investment.

Fed officials agreed before the surprise January 22 rate cut that decisive action was necessary to provide a jolt of confidence to shaken financial markets.