The US Federal Reserve said the US economy will climb faster than expected out of its deep recession, but also warned Wednesday that unemployment could top 10 per cent before the end of this year.
In its first economic forecast since April, the Fed said it expected the world's largest economy to recover from its 19-month-long recession - albeit slowly - in the second half of 2009.
The US central bank said its outlook had "improved modestly" since April and the economy "would expand sluggishly over the remainder of the year." It pointed to signs that the financial sector, consumer spending and housing sector were all beginning to stabilize.
For the whole of 2009, the Fed forecast a contraction of between 1 percent and 1.5 percent - better than its April prediction of a drop of 1.3-2 per cent.
But the US central bank said unemployment would continue to rise over the next few quarters. It predicted a range of 9.8-10.1 per cent in 2009, up from its April forecast of 9.2-9.6 per cent.
The US is mired in its worst recession since the Great Depression of the 1930s. The unemployment rate is currently at 9.6 per cent, its highest level in more than a quarter century.
The forecast was part of the minutes released from the central bank's last board meeting in June. The Fed chose to keep interest rates steady at their record low of 0 per cent, part of a series of drastic efforts to help nudge the US economy back into growth.
The Fed also slightly raised its forecasts for the coming years, predicting growth of between 2.1 per cent and 3.3 per cent in 2010 and between 3.8 per cent and 4.6 per cent in 2011.
But unemployment could take as long as five or six years to get back to its "long-run" average of about 5 per cent, the Fed said.