The Federal Reserve on Wednesday cut its forecasts for U.S. economic growth, but offered no hint of further monetary support, saying growth should pick up soon.
In quarterly projections released at the end of a two-day policy meeting, the central bank said the U.S. economy should grow 2.7 to 2.9 percent this year, a forecast that was marked down from a 3.1 to 3.3 percent projection released in April.
It said it sees 2012 growth in a 3.3 to 3.7 percent range. In April, it had said the economy would likely expand a somewhat more brisk 3.5 to 4.2 percent next year.
It pinned a recent slowdown in growth and quickening of inflation partly on transitory factors, including higher commodity prices and supply chain disruptions from Japan's devastating earthquake. It said the forces pushing up prices should dissipate, allowing inflation to subside to levels consistent with price stability, even as growth revives.
The slower pace of recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply-chain disruptions associated with the tragic events in Japan, the Fed said in a statement.
As widely expected, the Fed said it will maintain interest rates at exceptionally low levels for an extended period. It also confirmed it was ending its $600 billion bond-buying program at the end of the month, while reiterating that it will continue to reinvest principal payments from its holdings.
U.S. stocks were mostly flat after the Fed's statement as investors awaited a 2:15 p.m. news conference by Fed Chairman Ben Bernanke. Prices for U.S. government bonds were also nearly flat and the dollar was little changed against the euro.
There are no hints of further easing from the Fed, said Nick Bennenbroek, head of G20 forex strategy at Wells Fargo in New York.
LONG CRAWL BACK
Two years after the end of the U.S. recession, the recovery looks disappointingly weak.
While Fed officials have persistently said they expect growth to accelerate, reports since the Fed's April meeting show a clear loss of momentum in the world's largest economy.
Employers have been reluctant to hire and the jobless rate remains stubbornly high, climbing to 9.1 percent in May.
The Fed downgraded its view of the labor market, saying it had been weaker than anticipated and pushed its forecast for unemployment higher.
It said the jobless rate would likely average 8.6 to 8.9 percent in the fourth quarter, down a bit from a May reading of 9.1 percent but up from the Fed's April projections. Even in 2013, the Fed said joblessness would still be significantly above what it considers to be consistent with full employment.
The Fed's inflation forecast was little changed at 2.3 to 2.5 percent for this year, but its projection of core prices, which strips out food and energy costs, moved up to a 1.5 to 1.8 percent range from 1.3 to 1.6 percent.
Policymakers at the Fed strive to keep inflation in a 1.7 percent to 2 percent range, and the acceleration in core prices could complicate any desire to further support the economy.
With jobs uncertain and home values falling, consumer spending, which makes up around 70 percent of U.S. GDP, has lagged. Factory activity has been sluggish as well.
The economy grew at just a 1.8 percent annualized rate in the first three months of the year. Analysts expect growth in the second quarter to log a rate of around 2 percent, still not sufficient to generate a big uptick in hiring.
The Fed cut interest rates to near zero in December 2008 and is on track to buy $2.3 trillion worth of longer-term securities by the end of June. The latest buying program -- purchases of $600 billion worth of Treasuries -- ends June 30.
By committing to reinvest proceeds from maturing debt it holds, the Fed will keep its balance sheet -- and support for the economy -- from dwindling.
Analysts have begun to speculate that the Fed might begin to consider further steps to spur growth, although officials have made clear the bar to a further easing of monetary policy is high.
Bill Gross, co-chief investment officer of PIMCO, the world's top bond manager, said on Wednesday that the central bank would likely hint at further steps to help the economy at an annual conference in August in Jackson Hole, Wyoming.
(Editing by Andrea Ricci and Tim Ahmann)