Tags: Fed Forecast

Fed Officials Slightly More Upbeat on Economy

Wednesday, 16 Feb 2011 02:09 PM

 

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Federal Reserve officials were slightly more optimistic last month about economic growth for this year than they were in November, reflecting expected gains in consumer and business spending from tax cuts.

Fed officials said in an updated forecast released Wednesday that they think the economy will grow between 3.4 percent and 3.9 percent this year. That's an upward revision from their November forecast, which predicted gross domestic product will grow 3 percent to 3.6 percent.

The latest outlook foresees little improvement in the unemployment rate. The central bank predicts that the rate, now at 9 percent, will end the year at that level or possibly dip to 8.8 percent.

The Fed doesn't expect the slightly faster growth to trigger high inflation. Its latest forecast is for prices to rise 1.3 percent to 1.7 percent. That's only slightly more than its November projection, which expected consumer prices to increase 1.1 percent to 1.7 percent in 2011.

Chairman Ben Bernanke and others on the central bank's interest rate-setting panel remained cautious about how long it will take the economy to generate enough jobs to achieve normal unemployment. The Fed defines that level as 5 percent to 6 percent. The Fed said it would take five to six years to lower the rate that much.

In the minutes of the Fed's Jan. 25-26 deliberations, the central bank said unemployment would dip slightly to between 7.7 percent and 8.2 percent by the end of 2012 and to 6.9 percent to 7.4 percent by the end of 2013. Those estimates were little changed from November.

The Fed predicted that the GDP will expand 3.5 percent to 4.4 percent in 2012 and 3.7 percent to 4.6 percent in 2013. Both those forecasts were little changed from November.

In explaining its decision to boost the growth outlook for this year, Fed officials cited the tax-cut package Congress approved in December. That measure seeks to boost business investment through tax breaks for capital spending. It also renewed income-tax cuts and cut workers' Social Security taxes, boosting their take-home pay.

Fed officials also noted that since their November meeting, economic data showed that consumer spending, business investment and exports grew more strongly at the end of 2010 than had been expected.

The Fed's forecast of 3.4 percent to 3.9 percent GDP growth would compare with actual growth of 2.9 percent in 2010 as measured from the October-December quarter of the previous year.

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