Fed Sees Durable Recovery but High Unemployment

Washington, DC, Nov. 25, 2009--Unemployment is likely to remain high, and inflation low, according to minutes from the Federal Reserve's Nov. 3-4 meeting.

Fed officials are growing confident that the recovery will be durable, but also expressed concern their plans to keep interest rates low for a prolonged period could cause problems, including possible speculative activity in financial markets.

"Most participants now view the risks to their growth forecasts as being roughly balanced rather than tilted to the downside," according to the minutes, which were released on Tuesday and were accompanied by upward revisions to policy makers' growth forecasts.

"Some negative side effects might result from the maintenance of very low short-term interest rates, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations," they said.

The Fed cut benchmark interest rates to near zero percent last December and has pumped more than $1 trillion (602 billion pounds) into the economy to beat back a severe recession and restore growth.

The minutes indicated policy makers are not widely concerned about inflation in the medium term.

However, there was a sense that any turnaround in the labor market would not be fast enough to stem the rising unemployment rate. Estimates from FOMC members foresaw unemployment of as much as 7.5 percent by the end of 2012.

"The weakness in labor market conditions remained an important concern," the minutes said. "The considerable decelerations in wages and unit labor costs this year were cited as factors putting downward pressure on inflation."