Fed Sees Stronger Economy, But Housing A Worry

Fed Sees Stronger Economy, But Housing A Worry

By LUCA DI LEO AND MEENA THIRUVENGADAM

Of DOW JONES NEWSWIRES 

WASHINGTON -- U.S. Federal Reserve officials last month acknowledged the economy was gaining momentum, but some worried more stimulus may be needed to sustain the recovery, especially in the housing sector.

A few voting members on the Fed's rate-setting committee said it may be necessary to expand the central bank's $1.25 trillion mortgage-backed securities purchases if the economy weakens, minutes of the Dec. 15-16 meeting showed.

The minutes of the Federal Open Market Committee meeting, which were released with the usual three-week lag Wednesday, showed that central bank officials expect a slow recovery to keep the U.S. labor market weak and consumer prices subdued.

Fed officials said information reviewed in conjunction with the meeting suggested "the recovery in economic activity was gaining momentum."

The economy was strengthening in the last quarter of 2009, helped by an improvement in financial markets. However, Fed officials worried that persistently high unemployment in 2010 and the fading of the massive government stimulus could threaten a recovery from the worst recession in decades.

Some central bank officials worried that improvements in the housing sector may be undercut in 2010 as the Fed's purchase of $1.25 trillion of mortgage-backed securities winds down. The Fed has said it expects to complete the purchase by March 31, but not all FOMC members agree.

Some officials thought expanding the scale of asset purchases and continuing them beyond the first quarter of 2010 may be "desirable," the minutes showed. But at least one believed the improvement in the economy suggested the purchases could be scaled back.

"We have a recovery that seems more solid, but there's uncertainty on its pace and sustainability," said Paul D. Ballew, a former Fed economist who is now senior vice president at Nationwide.

As expected, the Fed held its benchmark interest rate near zero at the December meeting and affirmed its plans to keep it there for several more months due to high unemployment and low inflation.

Fed officials remained worried about the labor market's weakness, even following a better-than-expected November employment report showing job losses slowing to the lowest level since the recession began in December 2007.

"Several participants observed that more than one good report would be needed to provide convincing evidence of recovery in the labor market," the December minutes said. Fed officials have predicted the unemployment rate will average between 9.3% and 9.7% in the fourth quarter of 2010.

Labor Department jobs figures due out Friday likely will show that roughly one in 10 Americans who want to work were still out of a job in December.

The report is expected to show the U.S. jobless rate inched higher to 10.1% last month from 10% in November, according to a Dow Jones Newswires survey of Wall Street economists. The survey has analysts predicting nonfarm payrolls fell by 10,000 in December, following a moderate 11,000 drop in November.