Today's FED statement - 2:51PM

From the WSJ WASHINGTON -- U.S. Federal Reserve officials thought last month that the 18-month-old recession would end "before long," according to meeting minutes, but worried that the economy remained vulnerable to shocks. Officials upgraded their projections for the economy over the remainder of 2009 as well as 2010. In contrast, they expect the unemployment rate to exceed their prior forecasts, and at least one official expects it to top 10% through next year. Data between the Fed's April and June meetings "indicated that the economic contraction was slowing and that the decline in activity could cease before long," officials said in the minutes of their June 23-24 meeting, released Wednesday with the usual lag. As universally expected, the Fed held the target federal funds rate for interbank loans near zero at that meeting and pledged to keep rates "exceptionally low... for an extended period." Officials reiterated that stance in Wednesday's minutes, "given their forecasts for only a gradual upturn in activity and the lack of inflation pressures." Many Wall Street economists are taking "extended period" to mean no interest rate hikes until 2010. Yet in the minutes, officials warned that any recovery will be bumpy, especially for the labor market. And while downside risks have receded, they remain "significant." "Labor market conditions were of particular concern to meeting participants," the Fed said, adding that with the recovery expected to be sluggish, "most participants anticipated that the employment situation was likely to be downbeat for some time." The unemployment rate is currently 9.5%, a 26-year high. According to officials' quarterly projections, released along with Wednesday's meeting minutes, jobless rate forecasts for the end of 2009 range from 9.7% to 10.5%. One official expects the unemployment rate to reach 10.6%, though most expect the rate to fall next year. The Fed's bleak view of the employment situation was confirmed by June data released early this month. Payrolls fell by an unexpectedly large 467,000. Officials also saw continuing risks in financial markets. Though markets had improved, "underlying financial conditions remained fragile," the Fed said, and "banks could face substantial losses in their loan portfolios in coming quarters." The June Fed meeting minutes also suggested that officials are in no rush to change their asset purchase programs, which currently include $300 billion in longer-term Treasury securities and a total of $1.45 trillion for mortgage-linked securities. "Although an expansion of such purchases might provide additional support to the economy, the effects of further asset purchases, especially purchases of Treasury securities, on the economy and on inflation expectations were uncertain," according to the minutes.