Fed sees firmer growth

By Pedro da Costa and Mark Felsenthal

WASHINGTON (BestGrowthStock) – The Federal Reserve raised its forecasts for economic growth and debated eventually selling mortgage debt, according to minutes of an April meeting that offered no hints of imminent changes in monetary policy.

The Fed, in response to the worst financial crisis since the Great Depression, has 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 could boost inflation expectations and would eventually have to be sold, but not anytime soon.

“Most participants favored deferring asset sales for some time,” the minutes said.

The report reflected the U.S. central bank’s thinking before a worsening of the European debt 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 policy-makers, 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 predictions of stronger growth, the minutes indicated the Fed does not see inflation as a near-term risk, and is unlikely to begin tightening monetary policy anytime soon, particularly with Europe on the ropes.

“Europe’s problem adds to the desire on their part to stay on the sidelines with short-term rates,” said Paul Ballew, chief economist at Nationwide in Columbus, Ohio.

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, falling somewhat over the course of the year but remaining at historically elevated levels for the foreseeable future.

As the financial crisis deepened, the Fed slashed official interest rates near zero and vowed to keep them there for an “extended period.”

Stock Market Trading

Fed sees firmer growth