Fed slightly less upbeat on the economy in June

The Federal Reserve was slightly less upbeat on the economy and employment last month, holding stocks in check Wednesday. 

The central bank said in June it expects the economy to grow between 3 percent and 3.5 percent this year, down from its April estimate of 3.2 percent to 3.7 percent, according to minutes released Wednesday from the Federal Open Market Committee's June 22-23 meeting.

As evidence of the nation's economic recovery, the Fed reported an increase in consumer spending, increased business spending on equipment and software as well as increased production.

The expansion could be restrained by firms "caution in hiring and spending in light of the considerable uncertainty regarding the economic outlook," according to the minutes.

Households continuing to pay down debt and lack of equity in their homes, along with tight credit conditions for small businesses and households could further hamper the short- and long-term recovery. The European debt crisis has forced a tightening of financial conditions that would cause stress on U.S. financial markets.

Fiscal policy was helping economy growth "although participants expected that the effects of fiscal stimulus would diminish going forward and also anticipated that budgetary pressures would continue to weigh on spending at the state and local levels."

Federal Reserve officials haven't seen any need to boost monetary stimulus despite the downgrading of forecasts. 

"The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside," the minutes said. "The changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place."

Looking down the road the Fed expects gross domestic product to grow between 3.5 percent to 4.2 percent in 2011 and 3.5 percent to 4.5 percent in 2012 behind "a rebound in spending on housing, consumer durables, and business capital equipment as household income and balance sheets strengthen, credit becomes more widely available, and the recovery is seen by households and firms as more firmly established."

The labor market is expected to improve slowly over the next several years with the unemployment rate still hovering between 9.2 percent and 9.5 percent by the end of 2010 up slightly from 9.1 percent in April. 

Through 2012, those rates were expected to decline to between 7.1 percent and 7.5 percent, remaining well above assessments of its longer-run sustainable rate. Longer term, unemployment rates are expected to drop to between 5 percent and 5.3 percent, the same as predicted in April. 

Although conditions have improved at banks, commercial real estate strains could pose risks to those institutions.