WASHINGTON - February 19, 2009 - The Federal Reserve now expects gross domestic product (GDP) to contract by as much as 1.3 percent this year, compared with its October estimate of a 0.2 percent contraction. It came as White House economic adviser Larry Summers warned that it will be the worst U.S. recession since the Great Depression.

The central bank also predicted a big increase in U.S. unemployment - which will rise as high as 8.8 percent - and indicated that the troubled housing market is showing no signs of stabilizing.

The Fed introduced a long-term U.S. inflation estimate of 2 percent, which chairman Ben Bernanke said “should help to better stabilize the public’s inflation expectations”.

Bernanke said that the central bank will do “everything possible within the limits of its authority” to restore financial markets and ensure that the U.S. moves out of a recession as swiftly as possible.