U.S. Economy to Improve Gradually in Medium Term: Fed

Oct. 13 (xinhua) -- U.S. economic recovery is forecast to accelerate gradually in the medium term, with unemployment rate declining only slowly, the U.S. Federal Reserve said on Wednesday.

"In the medium term, the staff still projected real gross domestic product (GDP) to accelerate gradually, supported by accommodative monetary policy, further increases in credit availability, and improvements in consumer and business confidence from their current low levels," the central bank noted in minutes released on Wednesday of a Federal Open Market Committee (FOMC) meeting held in September.

The increase in real GDP was expected to be sufficient to reduce the unemployment rate only slowly over the projection period, while the jobless rate was anticipated to remain elevated at the end of 2013, said the Fed.

Temporary factors that led to slower growth during the first half of the year have partly reversed, contributing to some rebound in final sales and production, particularly in the manufacturing sector where progress had been made in coping with supply chain disruptions, noted the minutes.

Members of the FOMC, the central bank's interest rate policy making body, held that stresses in global financial markets, sluggish growth in households' real incomes, and heightened uncertainty about economic prospects seemed to have contributed to lower consumer and business sentiment and to be weighing on economic growth.

The central bank noted that low consumer confidence, continuing household efforts to repair balance sheets, and heightened caution with an uncertain economic environment were seen as factors likely to weigh on household spending.

Policymakers of the Fed were worried about possible spillover effects of the European debt crisis on the fragile U.S. economic recovery, stating that "if European policymakers did not respond effectively, European sovereign debt and banking problems could intensify, with potentially serious spillovers to the U.S. economy ".

The central bank decided to continue keeping its key federal funds rate at a historically ultra-low range of zero to 0.25 percent since the end of 2008.

The Fed announced last month to take "operation twist", a policy designed to increase the average maturity of the securities in the Federal Reserve's portfolio, with an aim to maintain the long-term low interest rate environment.

The FOMC said it intended to purchase 400 billion U.S. dollars of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less by the end of June 2012.