Fed forecasts slower growth next year

WASHINGTON - The housing collapse and credit crisis will slow economic growth and nudge up unemployment next year, the Federal Reserve said Tuesday in a first-of-its-kind forecast that some economists believe will lead to interest rate cuts early in 2008.

Don't count on a cut in rates at the Fed's December meeting, however, analysts say. The Fed called its rate reduction in late October a 'close call' and hinted that its two cuts this year may be sufficient to energize the economy, according to minutes of the Oct. 31 closed-door meeting made public Tuesday.

Policymakers raised concerns at that meeting that inflation might flare up again in the short term, especially in the face of rising energy prices.

But with the Fed's longer-term forecast calling for moderating inflation next year and beyond, economists believe the central bank will have

leeway to reduce rates next year.

Fed policymakers debated whether to further a key interest rate

WASHINGTON - The Federal Reserve's decision to slice a key interest rate last month to combat the housing slump and credit crunch was a 'close call,' according to meeting minutes that the board made public Tuesday.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed at the Oct. 31 closed-door session to lower the federal funds rate by a one-quarter percentage point - to 4.50 percent. It marked the second rate reduction in six weeks.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the sole dissenter at the meeting. He preferred no change in the funds rate. The smaller, October rate cut followed up a bolder, half percentage-point reduction in September, the first time the Fed had lowered its key rate in more than four years.

Freddie Mac loses $2B in 3Q, says it must raise capital

WASHINGTON - Freddie Mac, the nation's No. 2 buyer and guarantor of home loans, lost $2 billion in the third quarter and said Tuesday it must raise fresh capital to meet regulatory requirements. Its shares fell nearly 30 percent.

The quarterly loss was the largest ever for Freddie Mac which, like its larger government-sponsored competitor Fannie Mae and a number of large investment banks, has been slammed in recent months by rising defaults on home mortgages.