Fed downgrades economic forecast for this year

WASHINGTON — The Federal Reserve has sharply downgraded its projections for the country’s economic performance this year, predicting the economy will actually shrink and unemployment will rise higher.

Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year, up from prior projections of 7.1 to 7.6 percent.

The bleaker outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

According to documents on the Fed’s updated economic outlook, central bank officials “generally expected that the recovery would be unusually gradual and prolonged.”