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The Federal Reserve is worried about the U.S. economy's health and is looking at ways to offer more monetary stimulus, the central bank's influential vice chair, Janet Yellen, said on Friday. "We are prepared to employ our tools as appropriate to foster a stronger economic recovery in a context of price stability," Yellen told a financial industry conference. Her comments come just a day after a call by another Fed board governor, Daniel Tarullo, for the central bank to consider a fresh round of mortgage bond purchases.

 

Yellen said the central bank was exploring many options for easing monetary policy, and did not endorse any particular route. She said bond markets were again hinting at a rising risk of deflation -- the threat that prompted the Fed's second round of bond buys last year. She also argued that Europe's financial crisis threatened to spill over into the United States, possibly by forcing anxious banks to tighten credit at a time when the economic rebound remains tenuous. "The potential for such adverse financial developments to derail the recovery creates, in my view, significant downside risks to the outlook," Yellen said.