Washington  - Federal Reserve board members believe the US economy will contract between now and mid-2009, and suggested more interest rate cuts could be necessary, according to the minutes of the central bank's October meeting that were released on Wednesday.

The minutes made no mention of a recession, though two straight contracting quarters is typically defined as a recession. The world's largest economy contracted by 0.3 per cent in the third quarter, according to an initial government estimate.

The projections represent a dramatic downward growth revision for the central bank as the ongoing financial crisis has sent the US economy into a nosedive since September. The 15-nation eurozone and Japan have already dipped into recession.

For the whole of 2008, Fed members expected US growth of between 0 and 0.3 per cent, down from 1-1.6 per cent forecast in June. For 2009, projections ranged from a contraction of 0.2 to growth of 1.1 per cent, down from a range of 2-2.8 per cent predicted in June.

"Participants generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009," the minutes of the Fed's October 28-29 meeting read. Some members expected the slowdown to continue through most of 2009.

The Fed's benchmark federal funds rate was cut to 1 per cent at the board of governors' last meeting, the lowest rate since June 2004.

Some members "suggested that additional policy easing could well be appropriate at future meetings," the minutes said. The last time interest rates were below 1 per cent was in the 1950s.

In another signal of economic decline, US consumer prices fell 1 per cent in October, the largest one-month decrease since inflation prices started being published in 1947, the US government said earlier Wednesday.

The overall inflation index had remained flat through September after having its first decline in two years in August of 0.1 per cent.

The seasonally-adjusted figures reflected an 8.6-per-cent drop in energy prices. Petrol prices were down more than 14 per cent, the Bureau of Labour Statistics (BLS) said.

The escalation of food prices has slowed somewhat to only 0.3 per cent in October. Over the summer, food prices had been increasing an average of 0.7 per cent a month.

Year-on-year, however, Americans are paying 6.3 per cent more for food and 12 per cent more for petrol than they were in October 2007. The overall inflation index was 3.7 per cent higher than a year ago.

Core inflation, which does not include food or energy costs, declined 0.1 per cent since September and was up 2.2 per cent from October 2007. (dpa)