STAMFORD, Connecticut The U.S. economic recovery would need to stumble badly to spur the U.S. Federal Reserve to ramp up the pace of its stimulative asset purchases, William Dudley, head of the powerful New York Fed, said on Tuesday.
"If we were very definitely surprised on the downside and things looked really, really weak, I certainly wouldn't want to rule out raising the pace of asset purchases from the current $85 (billion per month)," he told the Business Council of Fairfield County, noting the current pace is not "hard wired."
Investors globally are anxiously predicting when the U.S. central bank will decrease, rather than increase, the quantitative easing program (QE) after Chairman Ben Bernanke last month outlined the Fed's conditional plan for withdrawing accommodation.
On June 19, Bernanke said the central bank expected to reduce the pace of bond-buying later this year and to halt the easing program altogether by mid-2014, as long as the economy improves as expected.
The comments set off a wave of financial-market selling globally, with the yield on 10-year Treasury debt last week rising to close to a two-year high. Dudley and other Fed officials managed to stem the selling with a series of forceful speeches last week arguing that investors had over-reacted.
Dudley, a close ally of Bernanke and a permanent voter on Fed policy, reiterated those comments on Tuesday, arguing the central bank will likely continue to support the economic recovery for some time.
QE3 "would continue at a higher pace for longer" than that outlined by Bernanke if the labor market and economic growth lagged the central bank's expectations, Dudley repeated.
Asked to clarify what he meant by "higher pace," Dudley raised the prospect of boosting the already unprecedented policy accommodation. He added that lowering the pace of QE3 "very much depends on the economic news" that comes in the months ahead.
Frustrated with the stumbling U.S. recovery from the 2007-2009 recession, the Fed has kept interest rates near zero for four-and-a-half years and has promised to keep them there until the unemployment rate drops to around 6.5 percent, from 7.6 percent in May.
The Labor Department's June jobs report is due on Friday.
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)