The Fed, which meets to review policy next week, in September announced a third round of quantitative easing and pledged to keep interest rates near zero until mid-2015 in an effort to underwrite a durable economic upswing.

Anti-inflation hawks were outnumbered by the doves on the Fed's policy-setting committee, who view inflation as a distant threat in the face of tepid U.S. growth and high levels of joblessness, plus other gauges of economic slack.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"If we were to see some good news on growth I would not expect us to respond in a hasty manner," said William Dudley, president of the New York Federal Reserve and a close ally of Fed Chairman Ben Bernanke.

U.S. retail sales notched a brisk 1.1 percent gain last month, data released earlier on Monday showed, as Americans bought more goods in an upbeat sign of economic activity.

That news, which promised faster economic growth ahead, followed a sharp drop in unemployment last month to 7.8 percent, which brought the rate below 8 percent for the first time in 3-1/2 years, although it remains high by historic standards.

Dudley also told the National Association for Business Economics at an event in New York that fears the Fed's extraordinary stimulus steps will cause financial asset bubbles or inflation were misplaced.

He said the Fed's ability to adjust the interest it pays banks to park funds there — called interest on excess reserves, or IOER — "means we can keep inflation in check regardless of the size of our balance sheet."

LACKER: 2ND QTR SLOWDOWN TRANSITORY

That sanguine view of the inflation risk posed by the Fed's actions was disputed by Richmond Federal Reserve President Jeffrey Lacker, who dissented against the policy easing last month and voiced concern about the impact on price stability.

"The behavior of inflation is fundamentally attributable to the actions of the central bank, while growth and labor market conditions are affected by a wide variety of factors," he told a business conference in Roanoke, Virginia.

The Fed last month announced a new open-ended bond buying plan of $40 billion in mortgage debt purchases per month until it sees a significant improvement in labor market conditions. This follows purchases of $2.3 trillion since interest rates were lowered to near-zero in late 2008.

"Simply observing a high unemployment rate does not imply that the Fed's monetary policy is failing to comply with its congressional mandate, nor does it necessarily mean that monetary policy needs to do more to achieve its goals," he said.

Lacker said the recent pattern of employment growth, with 146,000 jobs per month added in the third quarter, suggested a slowdown earlier in the year had been transitory.

Lacker said the Fed's guidance that it will keep rates low until at least mid-2015 could send the wrong message.

"It could be misinterpreted as meaning that the Committee believes the economy will be weaker than people had thought. By itself, that could have a dampening effect on current activity, which is not what was intended," he said.

U.S. growth cooled in the second quarter to 1.3 percent, and forecasters do not think the economy will manage a pace any faster than 2 percent for the rest of the year, although most see it picking up somewhat in 2013.

St. Louis Fed chief James Bullard raised his next year growth estimate to 3.5 percent, from a previous call of a pace above 3 percent. He told the Missouri Council on Economic Education that he saw unemployment dropping toward 7 percent over the course of the year, according to a Bloomberg report.

But U.S. growth has repeatedly undershot forecasts as it has gradually recovered from a severe recession in 2007-2009, and Dudley cited this experience for a reason why policy "needed to be still more aggressive," as well as to guard against shocks.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did