Fed mulled increasing debt purchases in April

By Mark Felsenthal and Alister Bull

WASHINGTON (Reuters) - The Federal Reserve said on Wednesday it saw modest improvements in the U.S. economy last month, but it still saw big risks and left open the possibility of increasing its purchases of mortgage-related and government debt to keep credit flowing and spur recovery.

Despite a pickup in household and business confidence that Fed officials saw helping to steady spending when they met in late April, they viewed the evidence as too tentative to erase risks facing the recession-mired economy.

The policy-makers cut their forecasts for economic growth over the next three years and debated whether they should further ramp up planned purchases of mortgage agency and government securities, minutes of their April 28-29 meeting said.

The Fed in recent months has turned to asset purchases as a means to keep credit flowing since running out of scope to further lower benchmark interest rates after bringing them down to close to zero percent last year.

"Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery," the minutes of the Federal Open Market Committee's meeting said.

"All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases," they added.

In fresh quarterly forecasts, the Fed projected the U.S. economy would contract by between 1.3 percent and 2.0 percent this year, with the unemployment rate rising to between 9.2 percent and 9.6 percent.

In January, the Fed had forecast a milder contraction of between 0.5 percent and 1.3 percent, with the jobless rate rising to between 8.5 percent and 8.8 percent.