The Federal Reserve predicts faster economic growth than anticipated this year, but not enough to seriously reduce unemployment.
Economists at the central bank now expect gross domestic product to grow by 3.9 percent this year, up from the 3 to 3.6 percent prediction announced last November, according to the minutes of a Fed policy meeting released on Wednesday. (Scroll down for the document.)
The expectations were raised by improvements in consumer spending in the last part of 2010.
Unemployment will likely stay high for the next two years, economists quoted in the minutes. In 2013, the jobless rate is expected to fall to 6.8 percent. This year, unemployment is expected to linger between 8.8 and 9 percent.
A new report by the Federal Reserve Bank of San Francisco, concluded that employment won't recover to pre-crisis levels.
The new expected growth rate, according to the NYT's Economix blog, is just over the annual growth rate for the past 80 years:
"Whereas we need something way, way faster than average growth to return our economy to a state that feels healthy, considering how quickly the economy shrank during the Great Recession."
Fed economists do not expect commodity price increases to cause dramatic inflation, according to the minutes. Bloomberg reports:
The Fed's preferred price index, which excludes food and energy costs, is projected by policy makers to rise 1 percent to 1.3 percent in 2011 and 1.0 percent to 1.5 percent in 2012. That compares with November's estimates for core inflation of 0.9 percent to 1.6 percent this year and 1 percent to 1.6 percent in 2012.
Central bankers prefer overall inflation in the longer run of 1.6 percent to 2 percent. The core personal consumption expenditures price index rose 0.7 percent in December from a year earlier, the smallest advance since records began in 1959.
In the minutes, Fed members also backed plans to continue an attempt to boost the U.S. economy by buying up to $600 billion in government debt, a controversial program another Fed official has said could backfire.
"A few members remained unsure of the likely effects of the asset purchase program on the economy, but felt that making changes to the program at this time was not appropriate," the minutes read.
"A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program. However, others pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion."