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The Associated Press April 25, 2012, 2:22PM ET

Fed forecast: More growth, lower unemployment

The Federal Reserve has boosted its outlook for U.S. economic growth this year and is slightly more optimistic about the unemployment rate, reflecting improvements in recent months.

In an updated forecast Wednesday, the Fed predicted that the economy will grow between 2.4 percent and 2.9 percent in 2012. That compares with its forecast in January, when it estimated growth this year between 2.2 percent and 2.7 percent.

The Fed is estimating that unemployment, now at a three-year low of 8.2 percent, will be between 7.8 percent and 8 percent at year's end. That compares with its forecast in January, when it estimated an unemployment rate as high as 8.5 percent at the end of 2012.

The Fed has slightly increased its estimate for inflation by year's end: between 1.9 percent and 2 percent. In January, it predicted inflation in a lower range: 1.4 percent to 1.8 percent.

Still, the higher inflation forecast is still lower than the Fed's official 2 percent target for inflation. And in its statement, the Fed said it expected higher oil and gasoline prices this year to result in only a temporary boost in inflation.

In January, the Fed for the first time included forecasts for where Fed officials saw its key policy lever, the federal funds rate, headed.

In the new forecast, 11 Fed officials expect the first interest rate hike will not occur until 2014 or later, the same number who said so in January. But no official is looking for the first rate hike to occur as late as 2016; in January, two Fed officials had put the first rate hike that far out.

The number of Fed officials who expect a rate increase to occur this year remained the same at three. And the number who expect the first increase in 2013 also remained at three.

All Fed officials saw the federal funds rate, the interest that banks charge on overnight loans, below 3 percent at the end of 2014. And 10 saw the funds rate below 2 percent at the end of 2014.

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