Fed raises growth expectations for 2011
The Federal Reserve moderately raised its projections for economic growth this year amid the recent surge in consumer spending, but central bank officials continued to lament the slow pace of improvement in the job market.
The Fed’s latest economic outlook, released Wednesday with the minutes of its last policy meeting in late January, shows U.S. economic output growing 3.4% to 3.9% this year. That’s slightly better than its last projections in November, when most Fed officials saw gross domestic product increasing 3% to 3.6%.
GDP, the total value of goods and services produced in the U.S., rose less than 3% last year, though final fourth-quarter numbers haven’t been reported yet.
The stronger outlook for this year takes into account the sharp increase in household spending in the final months of 2010, particularly on automobiles, as well as greater optimism by businesses.
Even so, the minutes show some Fed members questioning whether the recent gains in consumer spending can be sustained. And the meeting’s participants — six Fed board members along with presidents of 12 Fed banks around the country — were less upbeat about the labor market.
Most Fed officials think the unemployment rate will be 8.8% to 9% this year, declining only gradually to 6.8% to 7.2% in 2013.
“Overall, meeting participants continued to express disappointment in both the pace and the unevenness of the improvements in labor markets,” according to the minutes of the Jan. 25-26 meeting.
The Fed estimate didn’t reflect the January employment report, which was released Feb. 4. That report showed the jobless rate falling to 9% in January, even though businesses reported very weak employment growth, in part because of the harsh weather.
The minutes also revealed differences within the Fed over the central bank’s $600-billion bond-buying program to stimulate growth.
Although no one appears to have argued that the bond purchases, set to be completed in June, should be stopped right away, “a few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program.”
Analysts and investors are divided on the issue too, with some worried that the ongoing purchases would do little to spur growth while increasing the risk of runaway inflation as more dollars are injected into the financial system.
Higher prices for oil, food and other commodities in recent weeks have pushed up inflation in many parts of the world, but Fed officials didn’t express concern about U.S. inflation at their last meeting. They projected that core inflation, which excludes volatile energy and food prices, would be 1% to 1.3% this year, well below their informal target of 2%, with inflation edging higher in the next two years but still within their target range.
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