In what could indicate that the economy is firmly on its way to recovery, economic growth in the US continued in January as manufacturing and housing activity looked up.
As a dampener, however, Fed officials at a meeting last month projected that high unemployment will persist.
To add to the worry, some Fed officials suggested that the data available to them might not be accurate. It meant that the report that inflation was moderate might not be reflecting the exact picture.
A Fed report just released said that factories last month produced nearly 1 percent more, reversing a trend of cutting back on production in the early and middle parts of last year. That was the seventh consecutive month of growth in manufacturing, a sector that has helped drive the economic recovery.
Good news also emerged from the housing sector as builders started making more new houses and apartments last month than expected. The Commerce Department reported that housing construction rose 2.8 percent – a seasonally adjusted rate of 591,000 houses or apartments – the fastest growth in six months.
Minutes of their January policy meeting showed that the most likely next move will be an increase in an interest rate the Fed charges on emergency loans to banks, the discount rate, now at 0.5%.
The minutes also included updated forecasts by Fed officials that show them anticipating inflation-adjusted growth of between 2.8% and 3.5% in 2010 and 4% growth in 2011 and 2012. They expect inflation to remain subdued and the unemployment rate, now at 9.7%, to barely move for the rest of the year, then to drop to around 8.5% in late 2011 and to between 6.6% and 7.5% in 2012.
Meanwhile, the economy shows sure signs of recovery, the Fed officials are planning to withdraw several of the stimulus measures they had introduced to tide over the recession.
While surveys of household inflation expectations were stable, the Fed noted, some market-based measures of inflation expectations “suggested continuing concern among market participants about the risk of higher medium-term inflation,” the minutes noted.
In another debate, the minutes showed several Fed officials wanted to begin selling mortgage securities “in the near future,” a move Fed Chairman Ben Bernanke has signaled he doesn’t want to make quickly.