Special Report: Global Financial Crisis

Graphics shows the U.S. Federal Reserve predicting the U.S. economy will contract further, on Feb. 18, 2009.(Xinhua/Zhang Liyun) Photo Gallery>>>

    WASHINGTON, Feb. 18 (Xinhua) -- The U.S. Federal Reserve on Wednesday sharply downgraded its forecasts for the nation's economic performance in 2009.

    The central bank projected that the nation's unemployment rate will rise this year to between 8.5 and 8.8 percent, much higher than the jobless rate of between 7.1 and 7.6 percent it projected in mid-November last year.

    It also expected the world's largest economy to contract this year between 0.5 and 1.3 percent. Its forecast in November was that the economy could shrink by 0.2 percent or expand by 1.1 percent.

    Dragged by the worst housing slump, credit and financial crises since the 1930s, the U.S. economy has been in a recession since December 2007.

    "Given the strength of the forces currently weighing on the economy," policymakers at the Fed "generally expected that the recovery would be unusually gradual and prolonged," according to documents on the Fed's updated economic outlook.

    The unemployment rate in the United States rose in January to 7.6 percent, the highest level in more than 16 years.

    Fed officials predicted that unemployment would remain "substantially" higher than normal at the end of 2011 "even absent further economic shocks," according to the documents.

    On Wednesday, Fed Chairman Ben Bernanke vowed to take all possible actions to help jolt the nation's ailing economy.

    "In the United States, the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible," Benanke pledged in a speech at the National Press Club in Washington D.C..

    To deal with the worst credit and financial crisis since the 1930s, the Fed has cut a key interest rate to record lows and launched a series of radical programs in hopes of getting credit to flow more freely again to consumers and businesses.

    "Extraordinary times call for extraordinary measures," Bernanke said. "Responding to the very difficult economic and financial challenges we face, the Federal Reserve has gone beyond traditional monetary policy making to develop new policy tools to address the dysfunctions in the nation's credit markets."

    With all the Fed's programs to provide loans or buy debt, its balance sheet has mushroomed to just under 2 trillion dollars, from around 900 billion dollars in September.