In remarks prepared for delivery to the joint convention of the Idaho, Nevada, and Oregon Bankers Associations, San Francisco Federal Reserve Bank President John Williams stopped short of calling outright for a new round of bond purchases to further lower borrowing costs already near historic lows.

But Williams set the table for further easing, saying the Fed was missing its goal of fostering maximum employment and was at the same time undershooting its inflation goal.

"If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities," Williams said.

"We stand ready to do what is necessary to attain our goals of maximum employment and price stability."

The Fed has kept U.S. benchmark short-term interest rates near zero since December 2008 and has said it will keep them there through at least late 2014. It has also bought $2.3 trillion in Treasuries and housing-backed bonds in two rounds of so-called quantitative easing.

Last month it eased monetary policy by adding six months to its Operation Twist program, a step Williams said would have only a modest impact on the economy.

Wall Street economists increasingly see a third round of quantitative easing as likely, especially after employers created fewer jobs than expected in June and unemployment registered 8.2 percent.

Williams, who said he now sees U.S. growth at less than 2 percent this year and just 2.25 percent next year, expects the jobless rate to stay above 8 percent until the second half of next year. That's well above the 6.25 percent that he estimates represents maximum employment in the United States.

At the same time, Williams said he sees falling commodity prices, a rising dollar, and subdued labor costs pushing inflation down to 1.25 percent this year, before rising to 1.75 percent next year.

"We are falling short on both our employment and price stability mandates, and I expect that we will make only very limited progress toward these goals over the next year," he said.

Williams says his forecast factors in federal budgetary belt tightening, which will weigh on growth next year, and a continued drag from uncertainty from U.S tax and spending policies.

Europe is the most important "wild card" for U.S. growth, he said, and a crisis that escalates there could severely damage the U.S. economy.

"Strains in global financial markets raise the prospect that economic growth and progress on employment will be even slower than I anticipate," Williams said. "In these circumstances, it is essential that we provide sufficient monetary accommodation to keep our economy moving towards our employment and price stability mandates."