WASHINGTON — Federal Reserve officials last month cut their forecasts for growth this year and signaled they stood ready to take new steps to keep the recovery alive if the economy worsens.
A document released Wed nesday revealed a more cautious mood among Fed policymakers in light of Europe’s debt crisis, a volatile Wall Street, a stalled housing market and high unemployment.
With risks growing, Fed officials at their June 22-23 meeting saw the need to explore new options for bolstering the economy. That’s a turnaround from earlier this year, when they were moving to wind down crisis-era supports.
No new specific steps were disclosed or agreed upon at that time.
However, if the recovery deteriorates, Fed policymakers have options. They could revive programs to buy mortgage securities or government debt. They could lower the rates that banks pay for emergency Fed loans. The Fed also could create a program to spark 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.
In the end, Fed Chairman Ben 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 the rate there for an “extended period.”
At that time, Fed policymakers said they didn’t think the slowing in the economy warranted new stimulative actions besides those already in place, according to the minutes of the June meeting.
Fed officials concluded that the “economic outlook had softened somewhat.” In fact, half of Fed officials saw “risks to growth as having moved to the downside.” Against this backdrop, Fed officials offered a slightly more downbeat view of the economy.
They now predict the economy will grow between 3 percent and 3.5 percent this year. That’s down from a forecast of 3.2 percent to 3.7 percent made in April.
There’s little relief in sight for high unemployment. The jobless rate, now at 9.5 percent, would stay at that figure or in the best case fall to 9.2 percent this year. In the April forecast, the Fed had a slightly lower bottom number of 9.1 percent.
