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Fed issues a more positive assessment of U.S. economy

Federal Reserve officials issued a more upbeat, though still cautious, assessment of the economy, prompting analysts to predict that the improved outlook would reduce the odds that the central bank would take further steps to spur growth.

Emerging from a policy meeting Tuesday, the Fed, as expected, left intact its existing easy-money stance, keeping short-term interest rates near zero and reaffirming its January pledge that it would probably hold rates at rock-bottom levels at least until late 2014. That strategy is aimed at stimulating spending and investment.

Chairman Ben S. Bernanke and his Fed colleagues gave no hint that additional efforts to boost the economy were coming.

In fact, some analysts said, the Fed’s upgraded economic outlook — to “moderate” from “modest” growth in its latest statement — makes it less likely that policymakers will undertake another round of bond purchases or other stimulus moves.

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“The Fed can hardly be accused of acting as a cheerleader for the recovery,” said Paul Ashworth, chief U.S. economist at Capital Economics. “Nevertheless, we suspect that the improvement evident in the incoming data will persuade the Fed to shelve any plans it had for additional monetary stimulus in the near term.”

On Tuesday, the government reported solid retail sales in February and upward revisions in sales and inventories in prior months, prompting analysts to raise their economic growth forecast for the current quarter.

Most economists expect that growth in the current quarter and throughout the rest of the year will be somewhat slower than in last year’s fourth quarter. But the outlook has been brightening.

Since the Fed’s last policy meeting in January, the U.S. economic recovery has strengthened. In particular, employment has scored solid gains. Europe, meanwhile, has made some progress in managing its debt crisis.

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The Fed acknowledged these improvements Tuesday. Moreover, policymakers said business investment, along with consumer spending, has continued to grow; in January, the Fed said company investment had slowed.

Even so, the Fed reiterated that the unemployment rate remains high at 8.3% and that the “strains in global financial markets,” while easing, “continue to pose significant downside risks to the economic outlook.” The U.S. housing sector remains depressed, the statement added.

The central bank, which has a dual mandate to maintain price stability and maximize employment, said that inflation remains subdued and that the effect from higher oil prices would probably be temporary.

Tuesday’s policy statement was adopted by a vote of 9 to 1. Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, Va., provided the lone dissent, as he did at the last meeting. Lacker, known as an inflation hawk, has argued that the Fed may need to raise interest rates before 2014.

“In a way, they’re between a rock and a hard place,” said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi in New York.

Although most Fed officials feel pressure to try to boost employment, they’ll find it harder to justify more intervention as the economy improves and critics complain about inflation risks.

Rupkey said the Fed’s direction will become clearer in late April when policymakers meet next and update their projections for economic growth, inflation, unemployment and interest rates.

don.lee@latimes.com

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