Fed Sees Hopeful Signs, but Cuts Outlook

WASHINGTON -- The Federal Reserve expects the economy to improve in the coming months, even as policymakers downgraded their outlook for all of 2009 and said the unemployment rate could approach 10%.

Fed Chairman Ben Bernanke and his colleagues continue to believe that business sales and factory production will begin to recover gradually during the second half of this year as President Barack Obama's stimulus package and the Fed's aggressive efforts to lift the country out of recession take hold. They also pointed to signs that the recession's grip was easing in the current quarter, according to documents released Wednesday.

At the Fed's last meeting on April 28-29, policymakers opted not to take any new steps to shore up the economy after launching a $1.2 trillion effort in March. But some members last month said those plans for buying government debt and mortgage securities may need to be expanded to speed a recovery.

"Participants noted some improvement in financial conditions in recent months, signs that consumer spending was leveling out and tentative indications that activity in the housing sector might be nearing its bottom," the documents said.

That's consistent with observations made earlier this month by Bernanke, who gave his most optimistic prediction about the end of the recession, saying he expected the economy to begin growing again later this year.

In fact, the Fed's staff bumped up its forecast for economic growth for the second half of this year, although a figure wasn't provided.