Fed Sees Hopeful Signs, but Cuts Outlook

At the April meeting, some Fed policymakers said additional purchases "might well be warranted at some point to spur a more rapid pace of recovery."

The Fed has been battling the worst financial crisis since the 1930s, which has plunged the country into the longest recession since War World II.

With all the shocks to the economy, its recovery will be gradual. That will keep unemployment elevated well into 2011 and it could take time for the economy to get back to a path of full health in the longer term, the Fed documents said. Most Fed policymakers indicated that they expected "the economy to take five or six years" for that to happen, but their estimates for growth over the next few years are more optimistic.

The Fed expects the economy to grow next year between 2% and 3%. It should then pick up more speed in 2011, growing between 3.5% and 4.8%, according to the "central tendency" projections. The unemployment rate should drop to between 9% and 9.5% next year. It should dip to between 7.7% and 8.5% in 2011.

Private economists consider an unemployment rate around 5% to be normal. Some private economists don't believe that will happen until 2013 and questioned the rosier overall outlook for next year.

The Fed projected "very low" inflation for this year, with prices rising only between 0.6% and 0.9%. With a gradual recovery expected, prices should only inch up in 2010 and 2011.