Federal Reserve policy makers raised their assessment of the economy as the labor market gathers strength and refrained from new actions to lower borrowing costs. “The unemployment rate has declined notably in recent months but remains elevated,” the Federal Open Market Committee said in a statement at the conclusion of a meeting today in Washington. It also said “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.” Stocks advanced, sending the Dow Jones Industrial Average toward its highest closing level since 2007, after the Fed statement and as JPMorgan Chase & Co. increased its dividend. The best six-month streak of job growth since 2006 prompted Fed Chairman Ben S. Bernanke to acknowledge an improved path for the economy, even as policy makers repeated that unemployment is likely to stay high enough to warrant keeping borrowing costs “exceptionally low” at least through late 2014. “The Fed still doesn’t know which way the economy will go,” Roberto Perli, a former senior staff economist at the Fed, said in an interview on “The Hays Advantage” on Bloomberg Radio. “Therefore I think they’re more inclined to ease than they are to tighten.” U.S. stocks advanced, sending the Dow Jones Industrial Average to the highest level since 2007, as retail sales increased by the most in five months and JPMorgan Chase & Co. (JPM) increased its dividend. The Standard & Poor’s 500 Index added 1.8 percent to 1,396.06 at 4 p.m. New York time. The Dow rose 219.10 points, or 1.7 percent, to 13,178.81. The yield on the 10-year Treasury note rose to 2.12 percent from 2.03 percent late yesterday. The Fed said it expects “moderate economic growth” and predicted the unemployment rate “will decline gradually.” In its last statement in January, it said growth would be “modest” and unemployment “will decline only gradually.” Operation Twist Policy makers also said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist. The Fed didn’t alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities. Inflation “has been subdued in recent months although prices of crude oil and gasoline have increased lately,” the Fed said today. The increase in oil will “push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.” Rate Target The central bank in December 2008 lowered its target overnight interest rate to a range of zero to 0.25 percent, and it later purchased $2.3 trillion of assets in two rounds of so called quantitative easing. “If the recent economic strength continues, then of course all the plans for QE3 or other potential easing moves will be set aside,” said Perli, managing director at International Strategy and Investment Group Inc. in Washington. Richmond Fed President Jeffrey Lacker dissented for the second meeting in a row, saying he doesn’t anticipate that economic conditions are likely to warrant exceptionally low levels of the fed funds rate through late 2014. In the explanation of his dissent after the January meeting, the 2014 time horizon was omitted. The U.S. economy has gained strength as payroll growth boosts consumer demand. Household confidence climbed earlier this month to the highest level in four years, according to the Bloomberg Consumer Comfort Index. “All of the data we’re seeing suggests the overall economy and customer sentiment are improving,” David Dillon, chairman and chief executive of Kroger Co., the largest U.S. grocery store chain, said in a March 1 earnings call. Retail Sales A government report today showed a 1.1 percent advance in retail sales in February for the most in five months. The gain followed a 0.6 percent increase in January that was larger than previously estimated. Demand improved in 11 of 13 industry categories, including auto dealers and clothing stores. Consumers are getting a boost as job prospects brighten. Employers added 227,000 workers in February, completing the best six months for payroll growth since 2006. “There’s real improvement here, and we’re definitely on the recovery path” for employment, said Scott Brown, chief economist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $300 billion. Stock-market gains are contributing to consumer optimism and spending power. The Standard & Poor’s 500 Index rallied 9 percent this year through yesterday after completing its best February since 1998. Before today, the benchmark for U.S. equities rose 25 percent since concern about Europe’s debt crisis pushed the gauge to a one-year low on Oct. 3. Fed Forecasts Still, most Fed policy makers in January forecast the economy would grow 2.2 percent to 2.7 percent in 2012 and the unemployment rate would end the year at 8.2 percent to 8.5 percent. By the end of 2014, the FOMC expects a jobless rate of 6.7 percent to 7.6 percent, still above their goal for maximum employment of 5.2 percent to 6 percent. Policy makers will update their economic forecasts at the April 24-25 FOMC meeting, which will be followed by a press conference with Bernanke. “The economy from our vantage point is moving sideways,” Dave Denton, chief financial officer of CVS Caremark Corp., the largest U.S. provider of prescription drugs, told analysts today at a Barclays Capital conference in Miami. “I don’t see it moving down at this point in time. But at the same token, I don’t see it moving up in any significant fashion either.” Fuel prices are a risk to consumer spending. Rising oil has pushed the national average cost of gasoline up to $3.81 a gallon, from $3.28 at the start of the year, according to the American Automobile Association. Date Extended At its January meeting, the FOMC said that economic conditions would likely warrant keeping rates “exceptionally low” at least through late 2014, extending a previous date of mid-2013. In November, the Fed joined with five other central banks to cut the interest rate on swap lines providing dollar liquidity to banks strained by Europe’s financial crisis. These actions propelled the central bank’s balance sheet to a record $2.94 trillion on Feb. 15, more than triple its size before the 2008 bankruptcy of Lehman Brothers Holdings Inc. The European Central Bank is pausing its own easing campaign after returning its benchmark rate to a record low of 1 percent in December, freeing up collateral rules and lending banks an unprecedented 1.02 trillion euros ($1.34 trillion) for three years. Italian Bonds Steps in Europe have paid off, with investors crediting ECB President Mario Draghi for helping stabilize Europe’s two-year- old debt crisis. Italy’s 10-year bond yields have fallen below 5 percent from more than 7 percent in January, and the Bloomberg Europe Banks and Financial Services Index gained about 14 percent from Dec. 30 through yesterday. “It’s certainly a much better time now than it was even at the last meeting, and in multiple ways both in the U.S. economy and in foreign markets,” George Mokrzan, director of economics at Huntington Bancshares Inc. in Columbus, Ohio, said before the Fed’s statement.