Fed more confident in recovery, unhappy on jobs

WASHINGTON Wed Feb 16, 2011 5:16pm EST

Chairman of the Federal Reserve Ben Bernanke testifies on the state of the U.S. economy before the House Budget Committee on Capitol Hill in Washington February 9, 2011. REUTERS/Kevin Lamarque

Chairman of the Federal Reserve Ben Bernanke testifies on the state of the U.S. economy before the House Budget Committee on Capitol Hill in Washington February 9, 2011.

Credit: Reuters/Kevin Lamarque


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WASHINGTON (Reuters) - Federal Reserve officials raised their forecasts for economic growth last month but remained unhappy with the job market's recovery.

Minutes of the Fed's January 25-26 policy session released on Wednesday suggested the consensus was still firmly aligned with completing the planned purchase of $600 billion in government bonds. A few Fed members questioned whether continued stronger data would call for curtailing the program.

Officials believed downside risks to the recovery were dissipating and there was no mention of a potential extension of the bond purchase plan, the minutes showed.

"Participants generally expressed greater confidence that the economic recovery would be sustained," the minutes stated.

Despite that rosier assessment, policymakers expected only slow progress reducing unemployment and some said it was unlikely the recovery would strengthen so significantly that it would warrant curbing the bond buying plan.

"Overall, meeting participants continued to express disappointment in both the pace of and the unevenness of the improvements in labor markets," the minutes said.

U.S. Treasury debt prices, which had already slipped on a firm reading on producer prices, extended losses after the release of minutes.

"It's steady as she goes, but it's not enough to bring down unemployment," said Scott Brown, chief economist at Raymond James in St. Petersburg, characterizing the Fed's assessment of the economy. He said the Fed would likely hold off raising overnight interest rates, which are currently near zero, until early next year.

Fed officials raised their 2011 growth forecast to a range of 3.4 percent to 3.9 percent from their November projection of 3 percent to 3.6 percent, although projections for 2012 and 2013 were little changed.

Policymakers also made only minor changes to forecasts for unemployment and inflation.

The U.S. jobless rate was projected to be in a range of 8.8 percent to 9 percent in the fourth quarter of this year, with unemployment declining only gradually over the Fed's three-year forecast horizon. In November, the Fed expected the unemployment rate to be in an 8.9 percent to 9.1 percent range.


Government data released after the Fed's January meeting showed unemployment dropped to 9 percent that month, putting the jobless rate already at the upper point of the Fed's forecast for the last three months of the year.

The Fed's 2011 forecast range for inflation moved only at the low end, shifting to 1.3 percent to 1.7 percent from the 1.1 percent to 1.7 percent anticipated in November.

Commodity price increases around the world have stirred inflation fears and prompted accusations the Fed is behind the inflation curve.

Fed Chairman Ben Bernanke is likely to face questions about the Fed's easy money policies at a meeting of top finance officials from the Group of 20 leading economies in Paris this weekend. Some emerging market nations have blamed the Fed for fueling a global inflation that is harming their economies.

A report on Wednesday showed underlying U.S. wholesale inflation rose at the fastest pace in more than two years in January, a potentially worrying sign that higher prices for energy and food are passing through to other prices.

Economists, however, said they expected only limited pass-through to U.S. consumer prices.

The Fed minutes showed some policymakers saw the rise in energy and other commodity prices as a risk, but most officials believed high unemployment would likely keep inflation, which is below the Fed's preferred range of just under 2 percent, well in check.

In a statement it issued at the conclusion of its January meeting, the Fed noted the brighter outlook for the economy. By unanimous vote, policymakers agreed to remain on course with their plan to buy longer-term Treasury securities to boost economic growth.

The minutes showed some policymakers were uncertain about the impact the bond buying program would have on the economy, but believed it was best to follow through with plans already laid, according to the minutes.

Others said that if growth picked up more strongly than expected, the central bank should consider curtailing the program. Richmond Fed President Jeffrey Lacker has made that suggestion publicly in speeches since the meeting.

(Reporting by Mark Felsenthal and Pedro da Costa, and Richard Leong in New York, Editing by Chizu Nomiyama and Andrew Hay)

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Comments (4)
ppuffy3858 wrote:
The Feds need to look at the disparity between our “recovery” and persisting employment rates. The fact that the Fed, and our government, is loathe to disclose is that American businesses and banks *are* making profits, but they’re not reinvesting those profits into American jobs. They’ve figured out how to extract more for less by moving jobs overseas, downsizing, delayering and layoffs-just about every imaginable labor-cutting tactic that can be exploited-and these jobs will *not* be coming back to our economy. It’s just that simple. Business will always pursue profit and shareholder gains over any contrived loyalty to the American people, its workers, its brand. American Republicans are being sold a bill of goods, that good ol’ trickle-down theory that what’s good for the rich people will make its way into the form of more jobs. And that is a bold-faced lie that American companies are perpetrating on the American public, so that we’ll continue to buy their products, which are most likely made overseas in a sweatshop. The only thing I hope for now is that the American people will wake up, realize that our jobs have been sold to the lowest bidder and they’re not coming back, and reinvest in companies who do make American products, with American workers. It’s all we’ve got left, and it’s disappearing fast. With no middle-class to propel our economy forward, our country too will soon be rioting for change. One can only hope.

Feb 16, 2011 2:47pm EST  --  Report as abuse
DrJJJJ wrote:
Automation, computers, the internet, unrealistic corp. profit expectations/ downsizing and exportation of jobs to cheaper markets will continue to work against us folks! We far from the lowest producer in todays world market! I’m one boomer that’s not sold on how well technology has served us! A few more big reasons to downsize government since there will be fewer and fewer of us to create real value to pay for monster government!

Feb 16, 2011 5:56pm EST  --  Report as abuse
kaitydidnt wrote:
Spot on, ppuffy. The one thing you left out is that those of us who still think of ourselves as Americans–which assumes there is still an American nation–need to open our minds for a minute and realize that what we live under now is no longer a nation, but a multinational corporation. And as you pointed out, those have no loyalty, no morality, and only one value–profit.

Feb 16, 2011 5:56pm EST  --  Report as abuse
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