Fed sees hopeful signs but downgrades '09 forecast

WASHINGTON (AP) _ The Federal Reserve expects the economy to improve in coming months, even as policymakers have downgraded their outlook for all of 2009.

Fed Chairman Ben Bernanke and his colleagues believe business sales and factory production will begin to gradually recover later this year as President Barack Obama's stimulus package and the Fed's aggressive efforts to end the recession take hold. In new Fed documents, they also pointed to signs that the recession's grip was easing in the current quarter.

The Fed now expects the economy will shrink this year between 1.3 and 2 percent. The old forecast called for a contraction between 0.5 and 1.3 percent. The unemployment rate may hit nearly 10 percent, up from 8.8 percent in the old forecast.