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Federal Reserve officials see a recovery underway from recession but say it will be "restrained" by high unemployment and difficult credit, minutes from a policy meeting showed Wednesday.
The minutes released from the September 22-23 Federal Open Market Committee showed ongoing worries about unemployment despite an apparent pickup in economic activity.
A Fed staff projection used by policymakers showed some larger gains in employment than previously forecast, but unemployment holding as high as 9.25 percent by the end of 2010 and then falling to about 8.0 percent by the end of 2011.
The minutes indicated that participants "agreed that the incoming data and information received from business contacts suggested that economic activity had picked up following its severe downturn."
Many Fed officials had revised up their projections for economic activity in the second half of 2009 and beyond, on the basis of data showing steadying housing and consumer spending as well as other factors.
"Despite these positive factors, many participants noted that the economic recovery was likely to be quite restrained," the minutes showed.
"Credit from banks remained difficult to obtain and costly for many borrowers; these conditions were expected to improve only gradually.
"In light of recent experience, consumers were likely to be cautious in spending, and business contacts indicated that their firms would also be cautious in hiring and investing even as demand for their products picked up."
The report noted that some of the upturn in the economy "probably reflected government policy support," and that Fed officials "expressed considerable uncertainty about the likely strength of the upturn once those supports were withdrawn or their effects waned."
"Overall, the economy was projected to expand over the remainder of 2009 and during 2010, but at a pace that was unlikely to reduce the unemployment rate appreciably," the minutes stated.
At that meeting, the Fed acknowledged a recovery was underway from prolonged recession but maintained its near-zero interest rate and trillion-plus dollar effort to support the fragile improvements.
The panel voted unanimously at the meeting to maintain the federal funds rate of zero to 0.25 percent in place since last December to help jolt the economy out of its worst recession in decades.
The tone of the Fed "is getting far less cautious and far less negative, despite all the caveats," said Jon Ogg at 24/7 Wall Street.
"The key caveat here is that there is still some skepticism on the part of the FOMC. They are just not sure about the magnitude of the recovery. While that is always the case coming out of every recession, this recession was far deeper and it is easy to see how many policymakers are not sure."
The latest official data showed a 0.7 percent pace of output decline in the second quarter, with the economy nearly emerging from the slump that led to a hefty 6.4 percent tumble in the first quarter of 2009.
The minutes offered few clues on when the Fed would start winding down its extraordinary efforts to keep credit flowing with special liquidity programs and record-low rates.
"Most participants anticipated that slack in both labor and product markets would be substantial over the next few years, leading to subdued and potentially declining wage and price inflation," the minutes showed.
"To keep inflation expectations well anchored, all agreed on the importance of the Federal Reserve continuing to communicate that it has the tools and willingness to begin withdrawing monetary policy accommodation at the appropriate time and pace to prevent any persistent increase in inflation."
The minutes showed Fed members "see some risk of substantial further disinflation, but that risk had eased somewhat further over the intermeeting period."
