Minutes of their June meeting released Wednesday show that Fed officials signaled their concern that the struggling U.S. economy could worsen if Congress fails to avert tax hikes and across-the-board spending cuts that kick in at the end of the year. They also expressed worries that Europe's debt crisis will weigh on U.S. growth.
Members said the economy should continue to grow moderately. But the Fed lowered its growth forecast at the meeting after seeing the U.S. job market weaken and consumer spending slow. It also said it doesn't expect the unemployment rate to fall much further this year.
Some members noted that defense contractors are already laying plans for layoffs if lawmakers don't address the package of tax hikes and spending cuts by the end of the year. Members warned that tighter government spending could slow the economy well into next year.
At the meeting, the Fed extended a program that shifts its bond portfolio to try to lower long-term interest rates. Policymakers left open the possibility of providing further help, such as launching a new program of bond purchases.