WASHINGTON — The US economic recovery is now on a firmer footing, with consumers and businesses spending more despite still-high unemployment, according to Federal Reserve’s top policy panel.
Minutes of the Fed’s January meeting, published Wednesday, pointed to the bank’s more optimistic view of the US recovery, despite persistent high unemployment.
“Many participants” at the Fed’s last meeting believed the “expansion was on firmer footing,” according to the text.
“Participants generally expressed greater confidence that the economic recovery would be sustained and would gradually strengthen over coming quarters.”
As a result the Fed sharply increased its growth estimates for this year, predicting GDP would rise by 3.4 to 3.9 percent, versus the 3.0 to 3.6 percent predicted last November.
A marked improvement in consumer spending appeared to be a key factor in the Fed’s rosier outlook.
“Consumer spending rose strongly late last year,” Fed economists said, noting that businesses were also spending more on equipment and software.
“Spending by households picked up noticeably in the fourth quarter; business outlays continued to grow at a moderate pace.”
Policy makers noted that “spending on luxury goods also increased, and the pace of holiday sales was better than in recent years.”
Some members of the Fed’s interest rate-setting panel said that improved spending could force demand to “snap back” more quickly than thought.
“If so, a considerably stronger recovery could take hold, more in line with the sorts of recoveries seen following deep economic recessions in the past.”
But the housing and labor markets, both ravaged by the economic downturn, continued to be a blot on the economic landscape.
“Modest gains in employment continued, and the unemployment rate remained elevated,” staff said, as the Fed predicted the unemployment rate would be stuck at around 8.8 to 9.0 percent this year.
That is only slightly lower than the 8.9 to 9.1 percent predicted in November.
“Participants anticipated that a gradual but steady reduction in the unemployment rate would accompany the pickup in the pace of the economic expansion over the next three years.”
By the time of the 2012 presidential elections, the Fed predicted unemployment would be 7.6 to 8.1 percent.
Meanwhile, both residential and nonresidential construction activity “remained weak,” the Fed reported.
Low homebuyer demand, a backlog of unsold homes and tough conditions for bank lending all contributed to the malaise.
That was enough to convince the Fed to keep a $600 billion stimulus plan in place, although “a few members” said fresh positive data “could make it appropriate to consider reducing the pace or overall size of the purchase program.”