Federal Reserve officials discussed the possibility of launching a fresh round of bond purchases before deciding last month on a more limited step to aid the economy, minutes released on Wednesday showed.

Fed staff presented policy-makers with a range of ways they could step up monetary stimulus for the flagging economy, including laying out their goals for the labor market.

Business and consumer confidence took a steep dive in August and stock markets swooned, throwing a cloud over the recovery and leading officials to warn of significant risks to the economy.

Most members agreed that the revisions to the economic outlook warranted some additional monetary policy accommodation to support a stronger recovery, the minutes of the Fed's September 20-21 meeting said.

In the end, officials opted to rebalance the Fed's portfolio by selling short-term securities to buy longer-term ones, an effort to push long-term interest rates lower.

However, the minutes suggest the central bank could take more decisive action to help the economy if conditions get worse.

The biggest gun in the Fed's arsenal is undoubtedly another round of quantitative easing, UniCredit chief U.S. economist Harm Bandholz said, referring to a possible third round of central bank bond purchases.

The Fed has been struggling to spur a stronger recovery and bring down an unemployment rate that has been stuck above 9 percent for five straight months. It cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in bonds.

TWO WANTED MORE

Two Fed officials last month wanted stronger action, while three objected to any new efforts. In the end, Dallas Federal Reserve Bank President Richard Fisher, Philadelphia Fed chief Charles Plosser and Narayana Kocherlakota of the Minneapolis Fed all dissented against the decision.

In remarks on Thursday, Plosser cast doubt on the effectiveness of the Fed's latest attempt to lower borrowing costs.

It doesn't have a whole lot of credibility attached to it, he said in response to questions after a speech.

Separately, Fisher pressed his argument that the central bank had done enough, telling an audience there was a limit to what the Fed could do to lift employment.

Despite dissenting views, the Fed has moved to ease policy at each of its last two meetings. In August, it had vowed to keep interest rates ultra-low at least until mid-2013.

The minutes said a number of officials felt further bond buying would be the most potent initiative they could muster.

Most analysts, however, do not expect the Fed to take further action at its next meeting on November 1-2.

Paul Dales, senior U.S. economist for Capital Economics in Toronto, said the Fed might be willing to follow up its latest initiative, dubbed Operation Twist, with some other modest measures.

However, it intends to hold QE3 in reserve just in case things get much worse, he said.

Large-scale asset purchases have been a lightning rod for controversy abroad and at home, with critics charging the Fed with setting the stage for inflation and debasing the dollar.

The minutes said policy-makers discussed setting explicit objectives for the Fed's long-range goals for unemployment and suggested such a move could be twinned with a formal inflation target.

While most officials agreed greater transparency was worthwhile, many felt it would be necessary to communicate those objectives in depth -- something the Fed's terse post-meeting statement is ill-suited for.

Officials also decided they needed more time to study the potential side effects of lowering the interest rate the Fed pays banks on excess reserves.

(Additional reporting by Kristina Cooke in Philadelphia, Kim Palmer in Akron, Erwin Seba in Abilene, Texas, and Pedro Nicolaci da Costa and Jason Lange in Washington; Editing by James Dalgleish and Jan Paschal)