Responding to the weakness in housing and tight credit markets, the US Federal Reserve has made a cut in its forecast for the 2008 economic growth to a range of 1.8% to 2.5%. Earlier in July, it had made a prediction of annual growth in the range of 2.5% to 2.75%.

The cut in the forecast was the first quarterly update and this was delivered under a new policy, which was implemented by Ben Bernanke, the Fed boss. The Fed also made it clear that the decision for cutting interest rates at its last meeting was “a close call.”

Back in September, there have been cuts in the rate and the 50 basis points - this was expected to bring about inflation. However, Fed has clarified that its growth is to be slow, and that there would be a slight increase in unemployment, but it has expectations of the inflation remaining moderate.

The successive interest rate cuts have caused the dollar value to fall, compelling the investors seeking greater returns look towards other currencies. Recently, quite a number of big banks have come up with reports of heavy losses on the back of exposure to sub-prime mortgage loans, but the government data has revealed that the demand for housing is continuing to be weak.

There are some analysts who feel that the Fed prediction appears to be less optimistic, while the others are widely expecting the forecast of the growth to be trimmed.