U.S. consumer spending rose slightly more than expected in August, but inflation remained subdued, leaving the door open for the Federal Reserve to launch a fresh round of monetary policy easing.

The data on Friday was the latest in a series to imply economic activity rose modestly in the third quarter after growth slowed to a 1.7 percent annual pace in the April-June period.

The Commerce Department said consumer spending increased 0.4 percent after rising by the same margin in July. Analysts polled by Reuters had forecast spending, which accounts for about 70 percent of U.S. economic activity, rising 0.3 percent in August.

The Federal Reserve's preferred measure of consumer inflation — the personal consumption expenditures price index, excluding food and energy — rose only 0.1 percent for a fourth straight month.

In the 12 months through August, the core PCE index increased 1.4 percent for the third consecutive month.

"More quantitative easing is on the way. The Fed may see the track of growth being too slow. It may be too close for comfort for them in terms of deflation. I don't know whether they will do it (QE) in November or December," said John Canally, an economist at LPL Financial in Boston.

U.S. stock index futures extended gains, while Treasury debt prices pared losses. The U.S. dollar fell versus the euro.

The Fed warned last week that underlying inflation was below levels policymakers viewed as consistent with the U.S. central bank's mandate of full employment and price stability.

It said it was ready to pump more money into the economy to shore up growth and avert a harmful downward spiral in prices.

MORE ACTION WARRANTED

On Friday, New York Federal Reserve Bank President William Dudley said more action by the Fed to boost growth would likely be warranted unless the economic outlook improved.

"Further action is likely to be warranted unless the economic outlook evolves in such a way that makes me more confident that we will see better outcomes for both employment and inflation before long," Dudley told a conference of business journalists in New York.

The Fed, which has already injected $1.7 trillion into the economy through purchases of mortgage-related and government bonds, next meets on Nov. 2-3.

A 9.6 percent unemployment rate and shrinking household wealth as the economy struggles to recover from the worst recession since the Great Depression are crimping spending.

In August, spending was supported by a 0.5 percent rise in personal income, the largest rise since December, the Commerce Department report showed.

The rise in incomes was above market expectations for a 0.3 percent increase and followed a 0.2 percent gain in July.

"The income data could be a very early indication that incomes are starting to recovery a little bit, which of course would be a good thing," said Paul Nolte, managing director, Dearborn Partners in Chicago.

Spending adjusted for inflation rose 0.2 percent after a similar gain in July.

The fourth straight month of gains offered hope that consumers continued to prop up economic growth in the third quarter.

Spending grew at an annual 2.2 percent pace in the second quarter, the government reported on Thursday.

With spending a touch below the 0.5 percent rise in disposable income, the saving rate edged up to 5.8 percent from 5.7 percent in July. Savings rose to an annual rate of $661.9 billion.