Fed: Slow go on jobs recovery

NEW YORK (CNNMoney.com) -- The Federal Reserve expects unemployment to decline only modestly over the next few years, but the central bank's latest projection for economic growth is still slightly more bullish than its prior forecast.

The estimates, released Wednesday as part of the minutes of the central bank's previous policy meeting, put the unemployment rate at a range of 9.5% to 9.7% this year, a bit worse than the Fed's prior estimate of 9.3% to 9.7% from November. The unemployment rate was 9.7% in January.

More distressing for those struggling to find work, the Fed expects the jobless rate to only fall to between 8.2% and 8.5% next year and between 6.6% and 7.5% in 2012. All those estimates are above the typical unemployment rates of between 5% and 6% during economic recoveries.

The Fed policymakers also indicated in the minutes that "many business contacts again reported that they would be cautious in hiring, saying they expected to meet any near-term increase in demand by raising existing employees' hours and boosting productivity."

The central bank also said that concerns about the slow jobs recovery kept it from projecting stronger economic growth ahead.

The Fed did boost its estimates for economic growth to between 2.8% and 3.5% this year. Its November estimate was for growth between 2.5% and 3.5%.

But the slightly higher growth could be accompanied by higher inflation. The central bank raised its forecasts for overall price increases, and core inflation, which strips out volatile food and energy prices, by about one-tenth of a percentage point.

Still, both of the Fed's 2010 inflation estimates are below 2%, which is generally thought to be the central bank's target for keeping prices in check.

The Fed kept its key lending rate, the federal funds rate, near 0% at the meeting. This rate is used as a benchmark for how much banks charge consumers and businesses on a wide variety of other loans.

The central bank also reiterated in its last meeting that economic conditions were likely to "warrant exceptionally low levels of the federal funds rate for an extended period." Kansas City Fed President Thomas Hoenig disagreed with the use of that language though.

According to the minutes, Hoenig argued that he is worried such a promise "would lay the groundwork for future financial imbalances and risk an increase in inflation expectations."

He also argued for modest increases in interest rates soon, saying that would reduce the risks posed by rates near 0% and still provide support for economic growth.