The Federal Reserve played down forecasts by some of its ownpolicy makers that interest rates might rise faster than theypreviously predicted.

“Several participants noted that the increase in the medianprojection overstated the shift in the projections,” according tominutes of the March 18-19 meeting of the Federal Open MarketCommittee released today. Some expressed concern the rate forecasts“could be misconstrued as indicating a move by the committee to aless accommodative reaction function.”

U.S. stocks rose while Treasuries pared declines after theminutes eased concern about the timing of future interest-rateincreases. Even after rates rise, officials said last month, theymight have to be kept at levels considered below normal for longerbecause of tighter credit, higher savings and slower growth inpotential output.

The minutes reinforce Janet Yellen's message at her debut pressconference as chair last month that the interest-rate forecasts ofpolicy makers — which are displayed as a series of dots on a chart— are less important than the Fed's post-meeting statement.

“She was pretty blunt about it, saying 'Pay attention to thestatement, don't look at the dots,' ” said Josh Feinman, the NewYork-based global chief economist for Deutsche Asset & WealthManagement, which oversees $400 billion. “They knew this could be asource of confusion with the dots moving up, and they were thinkingabout how to manage that.”

Treasury yields climbed last month after policy makers predictedthat the benchmark interest rate would rise faster than previouslyforecast and Yellen said rates might start to rise “around sixmonths” after the Fed ends its bond-purchase program.

The Fed in March reduced the monthly pace of purchases by $10billion, to $55 billion, and repeated it is likely to continueparing the program in “further measured steps.”

“Members agreed that there was sufficient underlying strength inthe broader economy to support ongoing improvement in labor-marketconditions,” the minutes show. The FOMC next meets April 29-30.

The committee last month scrapped its pledge to keep the maininterest rate low at least as long as unemployment exceeds 6.5percent, saying it will look at a broader range of data whenconsidering when to increase borrowing costs. Fed officialspredicted that the benchmark interest rate would rise faster thanpreviously forecast.

General Agreement

While there was general agreement that slack remains in thelabor market, participants expressed a range of views regarding theamount of slack and how well the unemployment rate performs as asummary indicator of labor market conditions,” according to theminutes. “Several” participants said some factors suggest “theremight be considerably more labor market slack than indicated by theunemployment rate alone.”

The FOMC met by videoconference on March 4 to discuss forwardguidance for the benchmark interest rate, according to theminutes.

“Participants agreed that the existing forward guidance, withits reference to a 6.5 percent threshold for the unemployment rate,was becoming outdated,” the minutes showed. “The agenda did notcontemplate any policy decisions, and none were taken.”

The economy and employment are showing the steady gains Yellenand her colleagues say are necessary for a wind-down in stimulus.Private employment in March exceeded the pre-recession peak for thefirst time, a Labor Department report showed last week.

Payrolls excluding government agencies rose by 192,000 workersafter a 188,000 gain in February that was larger than firstestimated. That brought the job count to 116.1 million, beating theJanuary 2008 high of 116 million. Unemployment held at 6.7 percent,close to a five-year low, even as almost half a million peopleentered the workforce.

The jobs report added to evidence the world's largest economy isshaking off the effects of harsh winter weather that depressedconsumption and disrupted home building and manufacturing in muchof the country.

At the same time, Yellen, 67, said in a March 31 speech that theFed will need to maintain unprecedented accommodation for “sometime” because “considerable slack” remains in the labor market.“This extraordinary commitment is still needed,” she said.

Wide Range

The FOMC said last month interest rates will probably remain lowfor a considerable time after asset purchases end, and that it willweigh a “wide range of information,” including labor-marketmeasures, in considering when to raise the benchmark rate.

Fed officials, in forecasts released last month with the policystatement, upgraded projections for gains in the labor market andpredicted the main interest rate will rise to 1 percent by the endof 2015, higher than previously forecast.

Yellen, in a news conference following the gathering, playeddown the importance of the interest-rate forecasts, which arerepresented as a series of dots on a chart, saying the committeestatement is more important.

“These dots are going to move up and down over time,” she said.They moved up “ever so slightly,” she said. “The committee's viewson policy will likely evolve.”

Yellen succeeded Ben S. Bernanke as Fed chief in February afterthree years as vice chair. In that role, she helped shapecommunication as the central bank sought to support the recoveryfrom the longest recession since the Great Depression.

Philadelphia Fed President Charles Plosser, who votes on policythis year, told reporters yesterday he is “pretty pleased” with thejobs report for March, saying it “seemed to indicate the effects ofweather are diminishing.”

Chicago Fed President Charles Evans, who doesn't vote on policythis year, said in a March 28 Bloomberg Television interview thateconomic “conditions are looking pretty good right now,” and thecentral bank will probably raise rates in the second half of2015.

While flagging “a weak first quarter in the U.S. due toweather,” Evans said he expects the economy to grow at a 3 percentannual pace for “the rest of the year and into 2015.”

The release of the minutes coincides with the start of earningsseason for U.S companies reporting first-quarter results. Thereports will help policy makers determine whether recent economicweakness stems from harsh winter weather or fundamental obstaclesto growth.

Company Sales

Sales by companies in the Standard & Poor's 500 Indexprobably climbed during the quarter by 2.9 percent from a yearearlier, according to estimates compiled by Bloomberg. The indexjumped 30 percent last year, the best performance since 1997,fueled in part by Fed stimulus.

New York-based Alcoa Inc. posted profit yesterday that exceededestimates and forecast that global demand for aluminum willoutstrip production this year. The largest aluminum producer wasthe first S&P 500 company to report earnings for thequarter.

Miami-based Lennar Corp., the biggest U.S. home builder bymarket value, saw customer traffic and sales volume rise throughthe first quarter.

“The fundamental drivers of improvement in the housing marketremain a steadily improving economy with a slowly improvingemployment picture unlocking pent-up demand,” Chief ExecutiveOfficer Stuart Miller said in a March 20 earnings call.

Bloomberg News

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