DENVER (Reuters) - The Federal Reserve is looking at ways to offer further monetary stimulus to a shaky U.S. economic recovery, the central bank's influential vice chair, Janet Yellen, said on Friday.
Yellen said she was concerned by signals in the U.S. bond market that weak economic activity was again heightening the perceived risk of deflation.
She argued Europe's financial crisis threatened to spill over into the United States, by forcing anxious banks to tighten credit at time when America's rebound is still tenuous.
"The potential for such adverse financial developments to derail the recovery creates, in my view, significant downside risks to the outlook," Yellen told a financial industry conference in prepared remarks.
She argued inflation is not an immediate concern, but that the nation's unemployment problem posed a persistent problem that needs to be addressed by policymakers.
"We are prepared to employ our tools as appropriate to foster a stronger economic recovery in a context of price stability," she said.
Yellen urged lawmakers not to cut back on spending too quickly, since this could also risk derailing the expansion.
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