Fed raises 2010 economic growth, jobless estimates

WASHINGTON: The Federal Reserve on Wednesday raised its estimates of US economic growth and unemployment for 2010, noting a "moderate pace" of recovery from recession.

The Fed projected the US gross domestic product -- the broad measure of the country's goods and services output -- would expand in a range of 2.8 per cent to 3.5 per cent this year.

The central bank's previous forecast, last November, put the GDP growth range between 2.5 per cent and 3.5 per cent.

Though the economy overall appeared in better condition, unemployment was expected to remain high.



The Fed predicted the jobless rate to hover between 9.5 per cent and 9.7 per cent, higher than the November estimate of 9.3 per cent to 9.7 per cent.

Fed officials pondering debt sales, minutes show

Several Federal Reserve policymakers want to begin selling securities relatively soon as a way to cut back their massive supply of cash to the financial system, the central bank said. Minutes to the Fed's January meeting suggested officials still have a relatively positive outlook for the economy even as they worry about the impact of persistently high unemployment.

The minutes indicate that while there is increasing confidence within the central bank about the efficacy of its tools to withdraw monetary stimulus, there is also nagging disagreement on the timing and sequencing of exit steps. "Several thought it important to begin a program of asset sales in the near future to ensure that the Federal Reserve's balance sheet shrink more quickly," the minutes of the Jan 26-27 meeting said.

Other officials, however, appeared worried that dumping mortgage debt into a fragile market might drive up home loan rates, compromising what tentative stabilization has been achieved in housing. Housing starts rose 2.8 per cent in January, but at around a 591,000 unit per year pace, the level of activity is still barely a quarter of its boom-time peak.

US stocks pared gains, the dollar rose and US government debt prices extended losses after the minutes were released. At the January meeting, the Fed held benchmark overnight interest rates near zero and reiterated a pledge to keep them extraordinarily low for "an extended period."

Kansas City Federal Reserve Bank President Thomas Hoenig dissented at meeting because he was uncomfortable with the low-rate pledge. The minutes showed that he did not want to drop the vow altogether, but simply tone it down. There was no clear evidence that his dissent had much sympathy within the central bank's policy committee.

Still, there was active discussion on the principle behind it -- that the time might be nearing for a pullback. Hoenig also argued that driving benchmark borrowing costs modestly higher in the near-term could avoid the risk of longer-term problems, including a possible spike in inflation expectations, the minutes showed.