* Fed offers slight upgrade to its outlook
* Sees rise in inflation from oil as temporary
* Sticks to view that unemployment to decline gradually
By Mark Felsenthal and Pedro da Costa
WASHINGTON, March 13 The U.S. Federal
Reserve on Tuesday provided few clues on the prospects for
further monetary easing, offering just a slight upgrade to its
economic outlook while restating concerns about the high level
The central bank said it expects "moderate" growth over
coming quarters with the unemployment rate declining gradually;
in January, it said it expected "modest" growth.
It also said a recent spike in energy costs would likely
push up inflation, but only temporarily. Over a longer stretch,
the Fed said inflation would likely run at or below the its 2
"Labor market conditions have improved further; the
unemployment rate has declined notably in recent months but
remains elevated," the central bank said in a statement after a
U.S. stocks held gains, the dollar hit a fresh 11-month high
against the yen and prices for U.S. government bonds slipped
after the statement was released.
"They recognize employment is getting better but still has
room to improve and inflation may be a little higher ... but
longer term inflation is to remain stable," said Greg
Michalowski, chief currency analyst at FXDD in New York.
As widely expected, the Fed reiterated its expectation that
overnight interest rates would remain near zero until at least
through late 2014 and that it would continue its program to
reweight its portfolio toward longer-term securities. That
program, known as "Operation Twist," expires at the end of June.
Richmond Federal Reserve Bank President Jeffrey Lacker
dissented against the decision because he did not expect
economic conditions to warrant ultra-low rates until late 2014.
In January, he had dissented against the decision to offer a
time frame for the first expected rate hike.
The Fed cut overnight interest rates to near zero in
December 2008 and has bought $2.3 trillion in bonds to boost
growth. Financial markets are trying to gauge whether
policymakers may take fresh steps to stimulate the economy in
A quickening in the pace of U.S. jobs growth and a sharp
drop in the unemployment rate to 8.3 percent from 9.1 percent in
August has led some analysts to rein in their expectations for a
further easing of monetary policy.
A report on Tuesday showed retail sales posted their largest
gain in five months in February, the latest data to suggest the
economic recovery is on a more solid footing.
Even so, Fed officials are uncertain whether the progress
reducing unemployment can be maintained given still-sluggish
economic growth, and many economists believe the central bank
will launch another round of bond buying later in the year.
In a poll on Friday of firms that trade directly with the
Fed, 14 of 18 economists anticipated further quantitative
easing. That survey was taken after the government said the
economy created more than 200,000 jobs for the third month
running in February.
Analysts are looking to the Fed's two-day meetings in April
and June for decisions about any new directions for policy. At
both meetings, Bernanke will hold a news conference and
officials will make public updated economic and interest rate
Most economists think the economy will expand at about a 2
percent annual rate in the first quarter. Fed Chairman Ben
Bernanke said in January it would normally take a growth pace of
between 2 percent and 2.5 percent just to hold the jobless rate
While the economic recovery is nearly three years old,
officials lament that the United States is still far from full
employment. Although the jobless rate has fallen significantly
over the last six months, it remains stubbornly high.