WASHINGTON The Federal Reserve faces a difficult decision at next month's policy meeting on whether to offer further stimulus to a U.S. economy that is still growing but only slowly, St. Louis Fed President James Bullard said on Friday.
Policymakers could wait until December if they felt the need for greater clarity on the outlook, Bullard told CNBC television, though he acknowledged that financial markets were already assigning a very high probability of Fed action at the November meeting.
"This upcoming FOMC meeting is going to be a tough call, because the economy has slowed but it hasn't slowed so much that it's an obvious case to do something," Bullard said.
"I do think the risk of a double-dip recession has probably receded some in the last six to eight weeks."
Bullard, a self-proclaimed hawk, said the recent downward trend in inflation was a concern, but dismissed the argument that more Fed easing, which would take the form of further Treasury purchases, would be ineffective.
He cautioned against allowing the United States to go the way of Japan, a country that has struggled with a prolonged period of depressed prices and economic stagnation.
He indicated that, despite some reluctance about the risks of unconventional policies, the situation might require bond purchases beyond the more than $1.7 trillion the Fed has already conducted in response to the financial crisis.
"It doesn't seem like it's going to come back toward (the Fed's inflation) target unless we take further action," Bullard said.
After bouncing back from the worst recession since the Great Depression beginning last summer, U.S. gross domestic product expanded at a paltry 1.7 percent in the second quarter, raising worries about the prospect of a renewed contraction.
Bullard countered the view that Fed Chairman Ben Bernanke, who yields considerable influence over the Fed's policy-setting Federal Open Market Committee, has dovish policy tendencies because of his focus on the 1930s depression in his academic research.
"I think he's right in the middle," Bullard said.