Fed increases U.S. growth forecast

The U.S. Federal Reserve has increased its prediction for growth in the American economy, according to a forecast released Wednesday.

Minutes from the Fed's latest monetary policy committee meeting — which took place between Jan. 25 and 26 — show officials expect the economy will grow between 3.4 per cent and 3.9 per cent this year.

That compares with its November forecast, which predicted gross domestic product would grow by between three and 3.6 per cent.

The change reflected expected gains in consumer and business spending from tax cuts.

The latest outlook foresees little improvement in the unemployment rate.  The central bank predicted that rate, now at nine per cent, will end the year unchanged or possibly dip to 8.8 per cent.

The Fed doesn't expect the slightly faster growth to trigger high inflation.

Its latest forecast is for prices to rise from between 1.3 per cent to 1.7 per cent. That's only slightly more than its November projection, which expected consumer prices to increase in a range from 1.1 to 1.7 per cent in 2011.

Chairman Ben Bernanke and others on the committee remained cautious about how long it will take the economy to generate enough jobs to achieve normal unemployment.

The Fed defines that level as five to six per cent. The Fed said that could take five to six years.

CIBC World Markets economist Krishen Rangasamy said with unemployment still high, it remains unlikely that the Fed will hike rate hikes any time before 2013.