US Federal Reserve Bank officials said last night financial turmoil has increased risks facing the US economy.
The main threat is that the downturn in the housing market would hurt consumer and business spending, Fed Governor Frederic Mishkin said.
"Economic activity could be affected more severely in other sectors should heightened uncertainty lead to a broader pullback in household and business spending," Governor Mishkin said.
San Francisco Federal Reserve Bank President Janet Yellen struck a similar chord, saying tighter credit conditions had "appreciably" increased risks facing the US economy.
Fed policy-makers gather on September 18th to consider interest rate policy. Economists widely expect the central bank to cut the benchmark federal funds rate, with some arguing a surprise drop in employment in August, revealed in a report on Friday, justifies a hefty half-percentage point move.
The Fed has held the bellwether overnight rate at 5.25 per cent since June 2006.
But despite the concern from Ms Yellen and Mr Mishkin, other Fed officials said it was unclear if the economy had taken a turn for the worse, suggesting there is internal disagreement about the appropriate course of action.
Atlanta Federal Reserve Bank President Dennis Lockhart said the weak jobs data, which showed the economy lost 4,000 jobs in August and was weaker than earlier thought in June and July, should be evaluated in tandem with strong retail sales.