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The Fed's internal debate over whether to further stimulate the U.S. economy comes as central bankers overseas are trying to invigorate their sagging economies. Last week, the European Central Bank cut its benchmark rate to a record low, the Bank of England bought more government bonds and China's central bank cut rates for the second time in a month. At last month's Fed meeting, 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. And they expressed worries that Europe's debt crisis will weigh on U.S. growth. More stimulus "won't become a reality unless the recovery loses even more momentum or a more severe flare-up in the euro-zone crisis raises the already elevated downside risks," said Paul Ashworth, chief U.S. economist at Capital Economics. Members said the economy will likely continue to grow moderately. But the Fed lowered its growth forecast at the June meeting, noting that the U.S. job market had weakened and consumer spending slowed. It also said it didn'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. Chairman Ben Bernanke may offer further guidance on the Fed's plans next week when he delivers the central bank's updated economic assessment to Congress. After the June meeting, Bernanke told reporters he was open to another round of bond purchases if the job market didn't improve.
[Associated
Press;
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