Federal Reserve officials dialed up their efforts to boost the sluggish U.S. economy and said they were ready to do more if necessary to spur job growth.

They acted despite worries inside and outside the Fed that the central bank already has done all it can do to invigorate the disappointing economic recovery.

The Fed said Wednesday it would extend through the end of the year a program known as 'Operation Twist,' which aims to drive down long-term interest rates and reduce borrowing costs for businesses and households. Under the program, the Fed sells short-term securities and uses the proceeds to buy longer-term securities.

Fed Chairman Ben Bernanke made clear in a news conference after the policy makers' meeting that he is prepared to take further action if he doesn't see progress on bringing down unemployment, which was 8.2% in May.

'I wouldn't accept the proposition though that the Fed has no more ammunition,' Mr. Bernanke said. He added, 'if we don't see continued improvement in the labor market we'll be prepared to take additional steps.'

Those and other comments made clear that Mr. Bernanke remains a policy activist as another summer economic slowdown threatens. His tone also marked a departure from the April news conference, when Fed officials appeared to be comfortable with the economy's progress and prepared to stand pat rather than undertake new measures to spark growth.

Three consecutive months of disappointing job gains and mounting worries about Europe's financial turmoil helped change their view.

'Growth in employment has slowed in recent months,' the Fed said in its policy statement, adding that 'household spending appears to be growing at a somewhat slower pace than earlier in the year' and that financial strains from overseas posed 'significant downside risks to the economic outlook.'

Investors were initially disappointed the Fed didn't take more aggressive action Wednesday. The Dow Jones Industrial Average finished the day down 12.94 points, or 0.1%, to 12824.39, after at one point dropping by nearly 100 points.

The first-stage, $400 billion Operation Twist program had been scheduled to end this month. By extending it by six months, the Fed will be purchasing an additional $267 billion in Treasury bonds and notes with maturities ranging from six to 30 years, and selling an equivalent amount of securities with maturities of three years and less. This extension effectively expands Twist to $667 billion. By the time the program ends in December, the Fed will have almost no holdings maturing through January 2016.

Some analysts were skeptical about the impact of the Fed's latest move. 'It's doubtful that this will really help revitalize the U.S. economy, mainly because domestic demand remains weak and financial strains from Europe are likely to continue,' said Tanweer Akram, senior economist with ING Investment Management.

The impact of the Fed's decision to extend Operation Twist will likely be 'pretty limited,' said Paul Ashworth, chief US economist at Capital Economics, 'but I don't think there's any sort of magic cure anyway.'

Operation Twist is smaller than the Fed's earlier bond-buying programs and interest rates are already extremely low, he added.

'Any monetary action in the current economy is pretty limited because of the uncertainty, lack of confidence, credit constraints' and other headwinds, Mr. Ashworth said, but the Fed would be uncomfortable refraining from any action. 'Their view has always been 'better to try to do something' rather than throw your hands up and say 'there's nothing we can do.' '

Mr. Bernanke resisted criticism that extending Operation Twist would have little effect.

'We did take a substantive step today,' he said. Continuing the program for six more months should push down long-term interest rates and ease financial conditions more, he said.

The Fed already has pushed short-term interest rates to near zero, held them there since late 2008 and assured the public they are unlikely to move up through late 2014. It has also bought more than $2.5 trillion worth of Treasury and mortgage securities, in an effort to drive down borrowing costs, push up stock prices and shift investors into riskier holdings. The net effect, the Fed hopes, is to ease the burden of past debts for households and businesses and make them more willing to take risks such as hiring or investing today.

Among the possible next steps listed by Mr. Bernanke: A new bond-buying program, known as 'quantitative easing,' in which the Fed buys even more long-term Treasury bonds or mortgage-backed securities and pumps money into the financial system in the process.

The Fed could also change its pledge on short-term interest rates and say it expects to hold rates near zero beyond 2014. Nearly a third of Fed officials polled at the policy meeting said they favored keeping rates low until at least 2015.

Mr. Bernanke said he also is watching an effort by the Bank of England to funnel credit to the private sector by offering cheap loans to banks only if they pass it on to households and businesses. 'This will be a type of thing that will be on the list of programs we look at,' Mr. Bernanke said.

Accompanying the Fed's announcement was a bleak update to the central bank's own economic forecast, lowering its expectations for economic growth and raising its forecast for the unemployment rate. Fed officials now project the economy will grow by between 1.9% and 2.4% this year, a half-percentage-point slower than they thought in April, and that it will grow by less than 3% next year. They also said they see the jobless rate at 7% or above by the end of 2014.

Mr. Bernanke cited risks to the outlook, such as Europe's escalating debt woes. Other headwinds to growth he cited include business and consumer worries about the U.S. government's budget policies and a housing sector still damaged by the excesses of the 2000s borrowing boom.

Mr. Bernanke noted that inflation had subsided recently, primarily reflecting lower oil and gasoline prices. Fed officials Wednesday revised their estimates of inflation to between 1.2% and 1.7% this year, down from 1.9% to 2.0% in April.

Some economists noted later that the Fed might be prodded into taking more aggressive action if a more significant drop in inflation sparked worries of deflation. The Fed's inflation forecasts receded a bit, but officials have been far less worried about deflation recently than they were immediately after the financial crisis and in 2010. Mr. Bernanke said Wednesday that the Fed'ssecond round of bond-buying 'ended what looked to be an incipient deflation problem.'

Federal Reserve Bank of Richmond President Jeffrey Lacker voted against his colleagues' action on Wednesday because he 'opposed continuation' of Operation Twist, according to the statement issued after their meeting. Mr. Lacker has dissented at all four FOMC meetings this year.

However two new Fed governors Jeremy Stein and Jerome Powell, voted with Mr. Bernanke at their first policy meeting since they were confirmed by the Senate in May. The vote was 11-1.

KRISTINA PETERSON/JON HILSENRATH