The Federal Reserve is likely to deliver another round of monetary stimulus 'fairly soon' unless the economy improves considerably, minutes from the U.S. central bank's latest meeting suggested.

While the July 31-August 1 meeting occurred before some encouraging economic data, including a stronger-than-expected rise in July payrolls, policymakers were pretty categorical about their dissatisfaction with the outlook, according to the minutes released on Wednesday.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said.

Wall Street stocks erased most losses after the Fed released the minutes. Treasury bond prices, which have been under pressure from stronger economic figures, extended gains.

The dollar fell and the euro surged to a seven-week high against the greenback at the prospect of the Fed providing more stimulus.

The Dow Jones industrial average closed down 30.82 points at 13,172.76, although well above its session low, but the broader S&P 500 Index clawed back from losses to end 0.32 point higher at 1,413.49.

"Certainly these minutes are dovish and will revive hopes for increased Fed easing," said David Sloan, economist at 4Cast Ltd.

"We have seen some improvement in the data recently, but whether it is enough to qualify as a significant upturn is unclear."

The Fed cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in U.S. government debt and mortgage-related bonds in a further effort to push borrowing costs lower. It has said it does not expect to raise rates until late-2014 at the earliest.

Some officials at the meeting raised concerns about the Fed's large presence in the markets for Treasury and mortgage-backed securities, but others agreed with a staff analysis showing 'substantial capacity' for buying new assets.

The Fed held policy steady at the gathering but signaled a renewed readiness to act amid lingering softness in the economy in a statement it issued following the meeting.

The minutes showed the central bank is actively considering a 'flexible' bond-buying program which suggests it may not announce an upfront amount to purchase, as it did in the past.

"A move to an open-ended policy stance would be a important and powerful shift in the implementation of Fed policy; it would, in effect, say that the Fed is in motion until the data tell it to stop," Michael Gapen, at Barclays Bank in New York, wrote in a research note to clients.

Fed officials saw significant risks to an already weak U.S. economy, which grew at a sluggish 1.5 per cent annual rate in the second quarter.

The risks include a worsening of Europe's financial strains and looming U.S. budget cuts and tax hikes, which have become commonly known as the fiscal cliff.

U.S. economic data since the meeting has been a bit less gloomy. Although employment growth slowed sharply in the second quarter, it picked up again in July, when the economy created 163,000 jobs.

But the unemployment rate, which is derived from a separate Labor Department survey, rose to 8.3 percent from 8.2 percent in June.

At the last meeting, many Fed officials supported pushing back the likely timing of the eventual first rate hike, but they decided to defer the decision to the Fed's next meeting on September 12-13, when the central bank will release a new round of economic forecasts.

A few central bankers thought it might be a good idea to replace such language with guidance directly linked to economic factors, as has been proposed by Chicago Federal Reserve Bank President Charles Evans.

Officials also debated and tested the possibility of developing a consensus Fed forecast for the economy, and an associated path for monetary policy under a long-standing effort to improve communication on their thinking. They decided to hold a second test in conjunction with September's meeting.

A couple of policymakers favored lowering the rate the Fed pays banks to park their excess reserves at the central bank, currently at 0.25 per cent.

But several worried that money market funds could run into trouble if their returns are crimped further.

Officials noted the European Central Bank's recent decision to lower its deposit rate to zero offered a chance to learn about possible effects.

Similarly, a couple of officials broached the possibility of developing a loan incentive program like the Bank of England's recently minted funding-for-lending program.

The 80 billion pound project, launched in June by the British central bank and the government, is designed to spur lending by tying banks' access to cheap credit directly to bank lending to households and businesses.