Fed raises growth forecast for 2011

NEW YORK (CNNMoney) -- Minutes from the most recent meeting of the Federal Reserve released Wednesday show that policymakers anticipate a bigger bump in economic growth for 2011 than they thought just a few months ago.

The Fed estimates that the nation's gross domestic product will rise between 3.4% to 3.9% in 2011, up from its November estimate of an increase of 3.0% to 3.6%.

The minutes attribute the change to stronger than expected data on production and spending. But the Fed said the acceleration in growth will mainly be limited to the short-term, as growth estimates for 2012 and 2013 were only slightly adjusted.

The projections are largely in line with language used by the Fed to describe the economy at large. Fed members said the economic recovery is "on a firmer footing" and they expressed greater confidence that the recovery would be "sustained" and "gradually strengthen over coming quarters."

The Fed also revised its unemployment estimates for 2011 as well as the next two years. But its new forecast of a jobless rate between 8.8% and 9% at year's end is only slightly lower than the current unemployment rate of 9% in January.

Fed members did express some doubts about consumer spending though. According to the minutes, some policymakers noted that while consumer spending, especially on automobiles, was strong in the fourth quarter, those levels may not be sustainable.

At the same time, the Fed noted that if consumer spending levels remain elevated, domestic demand could rebound more quickly than anticipated and "a considerably stronger economic recovery could take hold."

The Fed sees a few other problem areas lurking in the economy as well.

Members expressed concerns about possible spillover effects from the banking and fiscal worries in Europe. The Fed also cited budget problems for state and local governments and continued weakness in the housing market negative factors.

The minutes were from the Fed's first meeting of 2011, when the central bank decided to leave interest rates unchanged near historic lows and continue with its $600 billion bond buying program to stimulate the economy.

The anticlimactic decision was unanimous among all 11 members of the Fed's voting committee, including the four newest voters.