Bloomberg News

San Francisco Fed Sees ‘Serious’ Downside Risks to U.S. Outlook

October 17, 2011

Oct. 17 (Bloomberg) -- Europe’s sovereign-debt crisis poses a “serious” risk that growth in the U.S. and worldwide may fall below already reduced forecasts, according to a paper from the Federal Reserve Bank of San Francisco.

“The economic outlook has worsened,” research adviser Bharat Trehan wrote in a paper released on the bank’s Web site today. As European policy makers grapple with a solution, the crisis “has led to increased volatility in financial markets, with alternating spells of optimism and pessimism.”

The San Francisco Fed, one of 12 regional banks in the Fed system, expects real gross domestic product to expand only “moderately” at a rate that’s unlikely to push unemployment below 9.1 percent this year. Growth in the third quarter probably picked up to a 2 percent annual pace from 1.3 percent pace in the second quarter, according to a Bloomberg News survey of economists.

Europe’s crisis “creates a significant risk that economic growth, both globally and in the United States, could fall noticeably below” forecasts, Trehan wrote. “There are some serious downside risks to this outlook,” he added.

In September, John Williams, president of the San Francisco Fed, cut his growth forecast for the rest of 2011. The bank chief said he expects 2 percent growth for the final six months of 2011, compared with his 3 percent forecast in July.

--Editors: Gail DeGeorge, Christopher Wellisz

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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