Federal Reserve officials raised their forecasts for economic growth last month but remained unhappy with the job market's recovery.

Minutes of the Fed's January 25-26 policy session released on Wednesday suggested the consensus was still firmly aligned with completing the planned purchase of $600 billion in government bonds. A few Fed members questioned whether continued stronger data would call for curtailing the program.

Officials believed downside risks to the recovery were dissipating and there was no mention of a potential extension of the bond purchase plan, the minutes showed.

Participants generally expressed greater confidence that the economic recovery would be sustained, the minutes stated.

Despite that rosier assessment, policymakers expected only slow progress reducing unemployment and some said it was unlikely the recovery would strengthen so significantly that it would warrant curbing the bond buying plan.

Overall, meeting participants continued to express disappointment in both the pace of and the unevenness of the improvements in labor markets, the minutes said.

U.S. Treasury debt prices, which had already slipped on a firm reading on producer prices, extended losses after the release of minutes.

It's steady as she goes, but it's not enough to bring down unemployment, said Scott Brown, chief economist at Raymond James in St. Petersburg, characterizing the Fed's assessment of the economy. He said the Fed would likely hold off raising overnight interest rates, which are currently near zero, until early next year.

Fed officials raised their 2011 growth forecast to a range of 3.4 percent to 3.9 percent from their November projection of 3 percent to 3.6 percent, although projections for 2012 and 2013 were little changed.

Policymakers also made only minor changes to forecasts for unemployment and inflation.

The U.S. jobless rate was projected to be in a range of 8.8 percent to 9 percent in the fourth quarter of this year, with unemployment declining only gradually over the Fed's three-year forecast horizon. In November, the Fed expected the unemployment rate to be in an 8.9 percent to 9.1 percent range.

DIVIDED ON INFLATION

Government data released after the Fed's January meeting showed unemployment dropped to 9 percent that month, putting the jobless rate already at the upper point of the Fed's forecast for the last three months of the year.

The Fed's 2011 forecast range for inflation moved only at the low end, shifting to 1.3 percent to 1.7 percent from the 1.1 percent to 1.7 percent anticipated in November.

Commodity price increases around the world have stirred inflation fears and prompted accusations the Fed is behind the inflation curve.

Fed Chairman Ben Bernanke is likely to face questions about the Fed's easy money policies at a meeting of top finance officials from the Group of 20 leading economies in Paris this weekend. Some emerging market nations have blamed the Fed for fueling a global inflation that is harming their economies.

A report on Wednesday showed underlying U.S. wholesale inflation rose at the fastest pace in more than two years in January, a potentially worrying sign that higher prices for energy and food are passing through to other prices.

Economists, however, said they expected only limited pass-through to U.S. consumer prices.

The Fed minutes showed some policymakers saw the rise in energy and other commodity prices as a risk, but most officials believed high unemployment would likely keep inflation, which is below the Fed's preferred range of just under 2 percent, well in check.

In a statement it issued at the conclusion of its January meeting, the Fed noted the brighter outlook for the economy. By unanimous vote, policymakers agreed to remain on course with their plan to buy longer-term Treasury securities to boost economic growth.

The minutes showed some policymakers were uncertain about the impact the bond buying program would have on the economy, but believed it was best to follow through with plans already laid, according to the minutes.

Others said that if growth picked up more strongly than expected, the central bank should consider curtailing the program. Richmond Fed President Jeffrey Lacker has made that suggestion publicly in speeches since the meeting.

(Reporting by Mark Felsenthal and Pedro da Costa, and Richard Leong in New York, Editing by Chizu Nomiyama and Andrew Hay)

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