Fed upbeat about US economy

ECONOMIC forecasts by the US Federal Reserve remained positive despite a continued move to hold interest rates around zero.

During an April meeting of the bank’s Open Market Committee, chaired by Ben Bernanke, the bank said that the labour market was showing signs of improvement, while housing market spending was also picking up.

The Fed expects gross domestic product (GDP) growth to come in around 3.2 per cent to 3.7 per cent this year, showing greater optimism at the bank than at the start of the year when GDP was thought to grow between 2.5 per cent and 3.5 per cent.

Last month’s meeting also gave way to the start of a debate on the levels of mortgage debt the Fed currently owns – roughly $1.4 trillion (£971bn) – with officials agreeing that the debt would have to be sold off. There was no indication of when that would be.

Inflation is likely to remain subdued, according to the Fed minutes, which said: “With substantial resource slack continuing to restrain cost pressures and longer term inflation expectations stable, inflation is likely to be subdued for some time.”

The majority of the committee voted in favour of low rates, with the exception of Thomas Hoenig, who voted against it because of his disagreement to hold interest rates at around zero.

“The committee will maintain the target range for the federal funds rate at zero to .25 per cent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” said the minutes.