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Fed more confident in recovery, unhappy on jobs

WASHINGTON (Reuters) – U.S. Federal Reserve officials raised their forecasts for economic growth last month, but remained unhappy with the job market's recovery, according to minutes of their meeting released on Wednesday.

"Participants generally expressed greater confidence that the economic recovery would be sustained," the Fed said in minutes of its January 25-26 policy-setting meeting.

While officials believed downside risks to the recovery were dissipating, the minutes characterized the forecasts policymakers presented as "not greatly changed."

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.

The U.S. jobless rate was forecast to be in a range of 8.8 percent to 9 percent in the fourth quarter of this year, little changed from the Fed's earlier projection of 8.9 percent to 9.1 percent. Unemployment was seen declining only gradually over the Fed's three-year forecast horizon.

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

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 forecast range for 2011 headline 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. The Fed said it still expects total inflation to remain subdued.

U.S. Treasury debt prices slightly 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.

In a statement it issued at the conclusion of its January meeting, the Fed had noted the brighter outlook for the economy. By unanimous vote, policymakers agreed to remain on course with their plan to buy $600 billion in longer-term Treasury securities by mid-year to boost economic growth.

The minutes showed that some policymakers were uncertain about the impact the bond buying program would have on the economy, but believed it was not right to change course, according to the minutes.

Others said that if growth picked up more strongly than expected, the central bank should consider curtailing the program.

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