Fed will act on market slide if warranted: Poole

WASHINGTON (Reuters) - The U.S. central bank is still examining the impact of last week's stock market slide, but would act if this threatened its goals for inflation or employment, a top Federal Reserve official said on Tuesday.

"The Fed doesn't know, and market participants do not know either, the full implications of last week's stock market declines and increases in risk spreads," St Louis Federal Reserve President William Poole said.

Poole said the Fed should not add to the uncertainty by making its own policy less predictable. But if it was convinced about the scale of the risks, it would not stand idle.

"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.

Poole, a voting member of the Fed's interest-setting committee this year, was speaking at a University of Missouri luncheon in Columbia, Missouri. The event was closed to the media, but a copy of his remarks was made public.

"Most of these upsets stabilize on their own, but some do not. I'm not saying that the Fed should ignore what happened last week - we need to understand what is happening," he said.

The Dow Jones Industrial Average .DJI fell steeply last week amid jitters over a possible credit crunch and spillover of sub-prime mortgage market woes to other home borrowers.

The turmoil encouraged investors to raise their bets that the Fed would cut interest rates this year, although odds had softened on Tuesday after two days of gains on Wall Street.

"If last week's events do not turn out to change the probable course of economic growth and inflation, then the funds futures market will reverse course and the expected policy easing will disappear," he said.