Top Fed officials set table for more easing | Reuters
"We are right at that edge, that if economic data keep coming in below our expectations -- and our view is we are not making progress on our mandates, or we don't expect to make progress on our mandates -- then I think we would need more accommodation," San Francisco Fed President John Williams told reporters after a speech in the resort area of Coeur D'Alene, Idaho.
But, underscoring the divisions at the U.S. central bank, Richmond Fed President Jeffrey Lacker reiterated his opposition to a new round of stimulus in an interview with Bloomberg Radio.
The Fed has kept benchmark short-term interest rates near zero since December 2008 and signaled it would keep them there until at least late 2014 to bolster the economy.
It has undertaken two unprecedented rounds of quantitative easing, buying $2.3 trillion in long-term securities to push down borrowing costs.
Last month, after a stream of disappointing economic news, the Fed slashed its outlook for growth but took only a modest step towards easing policy further, adding six months to its so-called Operation Twist, which aims to lower rates by selling short-term securities and buying long-term ones.
But after a U.S. government report Friday showing employers added fewer jobs than expected in June, economists at top Wall Street firms polled by Reuters put the chance of a new round of policy easing at about 70 percent, up from 50 percent on June 20.
Williams, a voter on the Fed's policy-setting panel this year, said he had cut his growth forecasts for the next year and a half and now expects the jobless rate, currently at 8.2 percent, to stay above 8 percent until the second half of next year.
At the same time, falling commodity prices, a rising dollar, and subdued labor costs will drive inflation to 1.25 percent this year and 1.75 percent next year, below the Fed's 2-percent target.