UPDATE 3-Fed lowers growth forecast, raises inflation

(Adds details, quote; paragraphs 9-11)

* Fed sees slower growth, higher inflation in 2008 than three months ago

* Fed signals unlikely to cut rates even if economy slows

* Fed says cutting rates April 30 was "close call"

By Mark Felsenthal and Glenn Somerville

WASHINGTON, May 21 (Reuters) - The Federal Reserve on Wednesday slashed its U.S. economic growth forecast for 2008 and signaled that mounting concerns over inflation would make further interest rate cuts unlikely.

"Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term," the Fed said in minutes from its April 29-30 policy meeting.

Fed officials said that cutting benchmark interbank lending rates by a quarter percentage point to 2 percent at their last meeting was "a close call," reinforcing the impression that policy-makers may be putting further interest rate moves on hold.

"If you had any doubt that the Fed is signaling a pause, that doubt is gone," said Christopher Low, chief economist at FTN Financial in New York.

In an accompanying forecast, the Fed cut its projection for 2008 growth to a scant 0.3 percent to 1.2 percent, down from the 1.3 percent to 2 percent it forecast three months ago.

At the same time, the U.S. central bank said it expects inflation to remain "elevated" and unemployment to increase "significantly."

Wall Street stocks tumbled after the Fed forecast, with the Dow Jones industrials .DJI closing off nearly 1.8 percent. Treasury debt prices US10YT=RR also fell while the dollar eased against the euro EUR= and the yen JPY=.

U.S. short-term interest rate futures expect no imminent change from the Fed, but point to rate increases in the final months of the year.

SLOW RECOVERY

The minutes showed a Fed increasingly concerned about inflation and anticipating sluggish growth for a while, but cautiously optimistic the worst of the most serious financial crisis in years has passed.

"Much of the concern about severe disruptions to financial markets, which had motivated the aggressive policy actions at the beginning of the year, appears to have abated in the minds of most members," said Lehman Brothers economist Michael Hanson.