Janet Yellen, the Federal Reserve's influential vice chair, said on Tuesday the U.S. central bank has room to ease monetary policy further to support a tenuous economic recovery.
Yellen said turmoil in financial markets stemming from both Europe's banking crisis and general uncertainty about the outlook had increased the risks to the global economy, and that the Fed could offer additional support to U.S. growth.
The scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of long-term financial assets, Yellen said in remarks prepared for delivery to a conference sponsored by the San Francisco Federal Reserve Bank.
Yellen also called for policies to spur a faster recovery in the battered U.S. housing market, although she did not provide any specific recommendations.
The Fed in September decided to dip its toes back into the housing market by reinvesting proceeds of maturing mortgage and housing agency debt from its portfolio back into the mortgage-backed securities market.
Yellen said the contribution to the U.S. recovery from housing, which is usually key to economic rebounds, is likely to remain tepid in the near term, and that consumer spending is also not likely to be a key source of growth due to high household debt levels.
The recovery in the United States and other advanced economies has been proceeding too slowly to provide jobs for millions of unemployed people, Yellen said.
The U.S. economy grew just 2 percent in the third quarter, and the jobless rate has hovered near 9 percent all year.
The Federal Reserve, for its part, has aggressively loosened monetary policy, bringing official interest rates to effectively zero and purchasing some $2.3 trillion in securities in an effort to keep long-term rates low.
Some Fed officials have recently expressed a predilection for resorting to purchases of mortgage-backed securities if policymakers do decide that further easing is needed.