Reserve policymakers are debating tools for more unconventional easing of monetary conditions as two top officials indicated action may be needed to lower unemployment persisting near 10 per cent.
"Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that
we will see better outcomes for both employment and inflation before too long," New York Fed president William Dudley said.
His comments, following chairman Ben S. Bernanke's statement on Friday that the Fed has a duty to aid the economy, indicate that the outlook has weakened enough for action, said former Fed governor Laurence Meyer.
Dudley, vice-chairman of the Fed's policy-setting Open Market Committee, said additional securities purchases can have a "significant" effect on the economy.
"The threshold is met," said Meyer. The details of how the Fed eases further are "the most important question that's on my mind", he said. "It's going to be an amount that is high enough to say, they really mean it now."
The FOMC meets on November 2-3, giving members time to digest reports on September employment, retail sales and inflation.
"They have decided to do another round of quantitative easing," said Dino Kos, managing director at Portales Partners in New York and former executive vice-president in charge of markets at the New York Fed. "The only thing left to fight over is how they do it."
The US dollar fell to the lowest level since March versus the euro and dropped against the yen after Dudley's comments. Government reports showed US manufacturing expanded at a slower pace, while consumer spending increased, underlining the Fed's forecast for "modest" economic growth. The economy grew at a 1.7 per cent annual pace in the second quarter, down from 3.7 per cent in the previous three months.
- Bloomberg
