Fed sees U.S. economic woes persisting into 2009

With economic troubles cutting into customers' appetites, cost-cutting businesses dropped the ax harder.

New claims filed for unemployment insurance zoomed last week to 542,000, the highest since the summer of 1992, when the nation was recovering from a recession, the Labor Department reported Thursday. The latest news on the crucial jobs market was worse than analysts expected. They had forecast a small decline in claims.

Meanwhile, the number of people continuing to draw jobless benefits climbed to more than 4 million, the highest in just over a quarter century. Those figures partly reflect growth in the labor force, which has increased by about half since the early 1980s, but nonetheless underscore the difficulties of people trying to find work.

Against this backdrop, the White House signaled Thursday that President George W. Bush would sign legislation pending in Congress to extend unemployment benefits.

The Senate is expected to take up a bill this week, already passed in the House of Representatives, that would extend unemployment insurance for those whose benefits have run out. The Senate vote could occur as early as Thursday night and would require support from 60 senators to pass.

White House press secretary Dana Perino says Bush is "always concerned" when people lose their jobs and is eager to help ease their economic situations.

The grim news on layoffs follows a gloomy outlook from the Federal Reserve and diminishing hope that Congress can secure a fresh $25 billion rescue package for the tottering U.S. auto industry before lawmakers quit for the year.

Despite a flurry of bold government actions, including $700 billion financial bailout package now being rolled out by the Treasury Department, financial and economic problems rage on.

Treasury Secretary Henry Paulson -- who is overseeing the rescue effort -- will deliver an assessment of the economy in a speech Thursday in Simi Valley, California.

Paulson's outlook comes one day after the Federal Reserve dramatically lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to revive the economy.

Given all the worrisome economic news, Wall Street nosedived. The Dow Jones industrials on Wednesday lost 427 points, or about 5 percent, at 7,997 -- its lowest close since March 2003.

To cushion Americans from all the fallout, many economists believe the Fed will ratchet down its key interest rate -- now at 1 percent -- by one-quarter or one-half percentage point on Dec. 16, the last session of the year for its policy-making committee.

The economy will log little, if any, growth this year, and could jolt into reverse, according to various Fed projections released Wednesday. And, the frailty will extend into next year, the Fed said, where the economy could shrink or turn in subpar growth.

The economy "would remain very weak next year" and "the subsequent pace of recovery would be quite slow," the Fed said in its new economic projections. "The unemployment rate would increase substantially further."

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