Federal Reserve policy makers raised their assessment of the economy as the labor market gathers strength and refrained from new actions to lower borrowing costs.
"Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," the Federal Open Market Committee said in a statement at the conclusion of a meeting today in Washington. It said "strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook."
The best six-month streak of job growth since 2006 may not be enough to convince Chairman Ben S. Bernanke and fellow policy makers they can meet their goal of maximum employment without additional easing measures. Bernanke last month told U.S. lawmakers that the job market remains "far from normal" even as it showed signs of improvement.
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The Fed left unchanged its statement that economic conditions would probably warrant "exceptionally low" interest rates at least through late 2014. The central bank in December 2008 lowered its target overnight interest rate to a range of zero to 0.25 percent.
Policy makers said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank's holdings, a move dubbed Operation Twist. The Fed also did not alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.
"The FOMC is clearly shifting its stance away from blanket gloom to something more realistic, but they have a long way to go," Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York, said in a note to clients.
The Standard & Poor's 500 Index climbed 0.8 percent to 1,382.63 at 2:36 p.m. in New York. The yield on the 10-year Treasury note rose to 2.11 percent from 2.03 percent late yesterday.
Inflation "has been subdued in recent months although prices of crude oil and gasoline have increased lately," the Fed said today. The increase in oil will "push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate."
Oil-Price Gains
Rising oil has pushed the national average cost of gasoline up to $3.81 a gallon, from $3.28 at the start of the year, according to the American Automobile Association.
The Fed said it expects "moderate economic growth" and said the unemployment rate "will decline gradually." In its last statement in January, it said growth would be "modest" and unemployment "will decline only gradually."
Richmond Fed President Jeffrey Lacker dissented for the second meeting in a row, saying he doesn't anticipate that economic conditions are likely to warrant exceptionally low levels of the fed funds rate through late 2014.
The U.S. economy has gained strength as payroll growth boosts consumer demand. Household confidence climbed earlier this month to the highest level in four years, according to the Bloomberg Consumer Comfort Index.
"All of the data we're seeing suggests the overall economy and customer sentiment are improving," David Dillon, chairman and chief executive of Kroger Co., the largest U.S. grocery store chain, said in a March 1 earnings call.
A government report today showed retail sales in the U.S. rose in February by the most in five months. The 1.1 percent advance followed a 0.6 percent increase in January that was larger than previously estimated. Demand improved in 11 of 13 industry categories, including auto dealers and clothing stores.
Consumers are getting a boost as job prospects brighten. Employers added 227,000 workers in February, completing the best six months for payroll growth since 2006.
"There's real improvement here, and we're definitely on the recovery path" for employment, said Scott Brown, chief economist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $300 billion.
Stock-market gains are contributing to consumer optimism and spending power. The Standard & Poor's 500 Index rallied 9 percent this year through yesterday after completing its best February since 1998. Before today, the benchmark for U.S. equities rose 25 percent since concern about Europe's debt crisis pushed the gauge to a one-year low on Oct. 3.
Fed Forecasts
Still, most Fed policy makers in January forecast the economy would grow 2.2 percent to 2.7 percent in 2012 and the unemployment rate would end the year at 8.2 percent to 8.5 percent. By the end of 2014, the FOMC expects a jobless rate of 6.7 percent to 7.6 percent, still above their goal for maximum employment of 5.2 percent to 6 percent.
"The economy from our vantage point is moving sideways," Dave Denton, CFO of CVS Caremark Corp., the largest U.S. provider of prescription drugs, told analysts today at a Barclays Capital conference in Miami. "I don't see it moving down at this point in time. But at the same token, I don't see it moving up in any significant fashion either."
Policy makers will update their economic forecasts at the April 24-25 FOMC meeting, which will be followed by a press conference with Bernanke.
None of the 49 respondents to a Bloomberg survey of economists from March 9 to March 12 expected the Fed to announce a new round of asset purchases today.
Central bankers have already taken unprecedented steps to boost the economy following the longest and deepest recession since the Great Depression.
The Fed first lowered its target interest rate to a range of zero to 0.25 percent in December 2008. At its January meeting, the FOMC said that economic conditions would likely warrant keeping rates "exceptionally low" at least through late 2014, extending a previous date of mid-2013.
The central bank purchased $2.3 trillion of assets in two rounds of large-scale asset purchases, known as quantitative easing. In September, the Fed announced a $400 billion program, dubbed Operation Twist, to lengthen the average maturity of assets on its balance sheet.
In November, the Fed joined with five other central banks to cut the interest rate on swap lines providing dollar liquidity to banks strained by Europe's financial crisis.
These actions propelled the central bank's balance sheet to a record $2.94 trillion on Feb. 15, more than triple its size before the 2008 bankruptcy of Lehman Brothers Holdings Inc.
The European Central Bank is pausing its own easing campaign after returning its benchmark rate to a record low of 1 percent in December, freeing up collateral rules and lending banks an unprecedented 1.02 trillion euros ($1.34 trillion) for three years.
Steps in Europe have paid off, with investors crediting ECB President Mario Draghi for helping stabilize Europe's two-year-old debt crisis. Italy's 10-year bond yields have fallen below 5 percent from more than 7 percent in January, and the Bloomberg Europe Banks and Financial Services Index gained about 14 percent from Dec. 30 through yesterday.
"It's certainly a much better time now than it was even at the last meeting, and in multiple ways both in the U.S. economy and in foreign markets," George Mokrzan, director of economics at Huntington Bancshares Inc. in Columbus, Ohio, said before the Fed's statement.
Bloomberg News
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