Ben Bernanke and Co. at the Fed finally acknowledged that the economy is facing a severe short-term outlook, a stark contrast to the more upbeat assessment they had previously projected.

Source CNN Money:

The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. The combination of slowing growth and rising prices created a difficult situation that made the Fed's latest decision to cut rates on April 30 a "close call."

...

In addition, the Fed boosted its projection for inflation. It said it now expects personal consumption expenditures to rise between 3.1% and 3.4% in 2008, a full percentage point more than its earlier expectation.

Even when soaring food and energy prices are stripped out, the Fed expects steeper "core" inflation than its previous estimate.

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