WASHINGTON (MarketWatch) -- Federal Reserve policymakers now expect the U.S. economy to contract for as much as a year, with the risk that the slowdown could persist for even longer, according to edited minutes of a closed-door meeting of the Federal Open Market Committee on Oct. 28 and 29.

The Fed governors and Fed bank presidents "generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased," the minutes said.

Without using the word, the Fed is now forecasting a recession lasting a year or so. It would be the longest recession since the 16-month recession in 1981-82.

The committee said it "would take whatever steps were necessary to support the recovery." Read the minutes.

Nevertheless, "the subsequent recovery would be relatively gradual," the committee said. "Financial stresses would recede only slowly, notwithstanding the extraordinary measures that had been taken."

The central bankers also said they expected inflation to "diminish materially in coming quarters ... to levels consistent with price stability." Some policymakers said economic weakness could lead to inflation falling too much, opening up the specter of deflation.

The minutes were released on Wednesday, after the usual three-week delay. They also include a summary of two conference calls held by the FOMC.

The FOMC lowered its target for the federal funds interest rate by a half-percentage point to 1% at the Oct. 29 meeting, and hinted that further rate cuts could be coming to address the worsening economy. See archived story.

Even after the rate cuts, members of the FOMC thought "substantial downside risks" would remain, the minutes said.

The 17 participants in the FOMC meeting also downgraded their formal economic forecasts. The consensus of the group now looks for gross domestic product to grow between 0% and 0.3% in 2008, with growth in 2009 between negative 0.2% and positive 1.1%.

Those estimates are significantly lower than the forecasts made in June, when they thought the economy would grow between 1% and 1.6% this year and between 2% and 2.8% next year.

The FOMC now projects the unemployment rate will average between 6.3% and 6.5% at the end of this year and will average between 7.1% and 7.5% next year. Three months earlier, the FOMC had expected unemployment to remain below 6% throughout the period.

The FOMC said inflation would moderate to a 1.3% to 2% pace next year, with core inflation at 1.5% to 2%, within the Fed's so-called comfort zone.

Looking ahead, the FOMC said further rate cuts may be necessary. Most of the risks were to the downside, with some participants concerned about a "negative spiral in which financial strains lead to weaker spending, which in turn leads to high loan losses and a further deterioration in financial conditions."

Some members of the committee argued that the FOMC should quickly unwind its easy money policies as financial markets normalized. Some members said "further policy action might have limited efficacy" and that the FOMC had "limited room" to lower the fed funds target and should therefore go slowly.

The committee did not discuss in depth its options for quantitative easing now that the federal funds rate is so close to zero, at least according to the summary released Wednesday. So-called quantitative easing policies would allow the Fed to continue flooding the economy with funds even if the target rate were zero.

In a speech on Wednesday, Fed Vice Chairman Donald Kohn said the Fed had already engaged in some forms of quantitative easing. He said that it should explore what other forms of quantitative easing might be employed "as contingency planning." See full story.

John Makin, a scholar at the American Enterprise Institute, said that the Fed should consider direct purchase of government securities and mortgage-backed securities.

Mickey Levy, the chief economist at Bank of America, said he would like the Fed to buy mortgage securities in the open market. "This would pump more liquidity and loosen up mortgage lending," he commented.