Three voting members of the Federal Reserve's policy committee signaled Wednesday that they would support further action by the Fed if the economy weakens.
Janet Yellen, the vice chairman of the Fed, Dennis Lockhart, president of the Fed's Atlanta regional bank, and John Williams, president of the Fed's San Francisco regional bank, all said in speeches that they would back more stimulus if conditions worsened.
Yellen, an ally of Chairman Ben Bernanke, says the Fed could pursue more bond buying to lower long-term interest rates and encourage borrowing and lending. Or it could extend its plan to keep short-term rates near zero beyond late 2014.
But she acknowledged both options would have only limited effect on the economy.
Even so, Yellen said that keeping a more accommodating money policy in place for an extended period of time is needed to keep the economy on the path to recovery.
In remarks prepared for delivery at a Federal Reserve Bank of Boston dinner, she noted that despite some modest improvement of late, the weak housing sector remains one of several factors weighing down the economic recovery and keeping the nation's unemployment rate elevated.
"Given these headwinds, I believe that a highly accommodative monetary policy will be needed for quite some time to help the economy mend," Yellen said.
Lockhart voiced a similar observation at a speech earlier in Florida.
He said dismal job growth in April and May highlighted the problems facing the "halting and tenuous" recovery. If conditions deteriorate, "further monetary actions to support the recovery will certainly need to be considered," he added.
Lockhart did not specify what measures should be weighed. But many investors hope the Fed will continue buying bonds in an effort to drive down long-term interest rates.
Speaking to Seattle-area community leaders in Bellevue, Wash., Williams spelled out ways the Fed could help counter a worsening economic and unemployment outlook, or a scenario where inflation falls significantly.
"In such circumstances, an effective tool would be further purchases of longer-maturity securities, potentially including agency mortgage-backed securities," he said. "Past purchases have succeeded in lowering borrowing costs and improving financial conditions, thereby supporting economic recovery."
Bernanke will testify Thursday on Capitol Hill and could provide further guidance on Fed policymaking.
The Fed has done two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending. After those purchases ended, the Fed began a program dubbed Operation Twist: It sells shorter-term securities and buys longer-term bonds to keep their rates down. Operation Twist is set to expire at the end of this month.
Bernanke has said that more bond purchases, or other steps by the Fed, are still an option if the economy weakens. But many analysts don't expect further moves at the Fed's next policy meeting June 19-20. They note that long-term rates have already touched record lows. And few think further Fed action would lower them much more.
Many economists think Bernanke will discuss the possibility of further Fed efforts at a news conference after the June meeting but won't announce any new actions. Some say he could help shore up confidence by reiterating that more action remains an option should the economy weaken.