Fed officials said they also are concerned that sluggish economic growth could prevent prices from rising at a healthy rate.
But at the end of its meeting, the Fed announced no new steps to try to rejuvenate the economy and drive down unemployment. Instead, it hinted that it's prepared to see if the economy can heal on its own.
Stock prices, which had been relatively flat before the Fed's statement, fluctuated before returning to about the same level in late-afternoon trading.
The meeting is the last for the Fed's chief policymaking group before the Nov. 2 midterm elections. It comes as voters are focused on the economy and the jobs crisis. Polls show they probably will punish Democrats in Washington for the sluggish economy.
In its statement, the Fed used the same language it did in August to sketch a downbeat view of the economy. It concluded that economic activity has slowed in recent months. And it warned that the pace of growth probably will be "modest in the near term" almost identical to the assessment it made a month ago.
But the Fed delivered a stronger signal that it would take new steps to lift the economy. The Fed said it is "prepared to provide additional accommodation." In its previous policy statements, the Fed didn't go that far. Instead, it had said it would "employ its policy tools as necessary."
The Fed made clear that given the economy's weakness, it's more concerned about prices falling than rising. It didn't use the word deflation. But some economists have raised fears about the country sliding into a deflationary spiral. That's a widespread drop in wages, prices of goods and services and the value of stocks and homes.
"They are more worried about the economy and deflation than I thought they would be," said Sung Won Sohn, an economist at the Martin Smith School of Business at California State University.(2 of 2)
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