Federal Reserve Sees Slightly Better 2010 Economy

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The Federal Reserve raised its forecasts for U.S. economic growth and discussed strategies for eventually selling mortgage assets at their last meeting in April, minutes of the gathering released on Wednesday showed.

In response to the worst financial crisis since the Great Depression, the Fed bought more than $1.4 trillion in mortgage debt, an unusual step that has stoked fears of future inflation. Fed officials agreed at their April 27-28 meeting that such holdings would eventually have to be sold, though not any time soon.

"Most participants favored deferring asset sales for some time,'' the minutes said.

The report reflected the Fed's thinking before a worsening of the European credit crisis, which has taken a toll on U.S. financial markets and prompted a reopening of a key emergency lending agreement with other central banks.

Its quarterly "central tendency" forecasts showed considerably greater optimism among policymakers, who predicted gross domestic product growth would come in around 3.2 percent to 3.7 percent this year. In January, officials thought the U.S. economy would grow between 2.8 percent and 3.5 percent.

Despite the rosier predictions, the minutes indicated the Fed does not see inflation as a near-term risk, and is unlikely to begin tightening monetary policy any time soon.

If anything, inflation was beginning to look a bit too low.

"Most members projected that economic slack would continue to be quite elevated for some time, with inflation remaining below rates that would be consistent in the longer run with the Federal Reserve's dual objectives,'' the minutes said, referring to the central bank's mandate of maximum sustainable employment and price stability.

U.S. consumer prices outside food and energy, a measure favored by the central bank as a benchmark for policy, rose just 0.9 percent in the year to April, the smallest gain since 1966.

The Fed saw the unemployment rate, currently at 9.9 percent, shifting somewhat lower over the course of the year but remaining at historically elevated levels for the foreseeable future.

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