Fed downgrades economic growth outlook

11 August 2010 0:00 am | Updated: 11 August 2010 8:29 am | By John Kenchington

The US Federal Reserve last night downgraded its economic outlook and signalled it would extend its efforts to support the economy.

The Fed’s Open Market Committee said in a post-meeting statement: “The pace of recovery in output and employment has slowed in recent months.”

The central bank announced plans to reinvest the proceeds from the nearly £823bn of mortgage-linked bonds it holds that are maturing back into the economy.

The move is a shift in Fed policy, after in June it had said the recovery in the world’s biggest economy was “proceeding”.

The reinvestment - which will see the Fed buy back longer-dated government debt to keep borrowing costs down - represents a step back from its efforts to exit the monetary stimulus efforts it launched in the recession.

Some commentators warned the move could hail a renewed bout of asset purchases from the Fed and the announcement dampened the mood on markets.

The FTSE 100 index of the biggest UK companies is expected to open lower this morning.

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