Economic-growth forecast is pared

WASHINGTON - Federal Reserve officials cut their forecasts for growth this year and signaled they stood ready to take steps to keep the recovery alive if the economy worsens.

They now predict the economy will expand between 3 percent and 3.5 percent this year. That is down from a forecast of 3.2 percent to 3.7 percent made in April.

Minutes of the Fed's latest meeting, released Wednesday, revealed a more cautious mood among the Fed policymakers in light of Europe's debt crisis, a volatile Wall Street, a stalled housing market, and stubbornly high unemployment.

With risks increasing, Fed officials at their June 22 and 23 meeting said there was a need to explore additional options for bolstering the economy. That is a turnaround from earlier this year, when they were moving to wind down crisis-era supports.

No specific steps were disclosed or agreed upon at that time. However, if the recovery were to deteriorate, Fed policymakers have options. They could revive programs to buy mortgage securities or government debt. They could lower the rates banks pay for emergency Fed loans. Both steps would put more money into the financial system.

The Fed also could create a program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and expand the economy.

The economic and political hurdles for taking such action would be high, economists said.

"If the economy takes a nasty spill, then yes, it would take new policy action. But if we continue to see kind of mediocre, ho-hum growth, then that won't be enough for them to move," said Michael Feroli, an economist at JPMorgan Chase & Co.

In the end, Fed Chairman Ben S. Bernanke and his colleagues agreed at the June meeting to hold a key interest rate at a record low near zero to help energize the economy. And they repeated a pledge to keep rates there for an "extended period."

Fed officials concluded that the "economic outlook had softened somewhat." In fact, half of the Fed officials said they interpreted "risks to growth as having moved to the downside."