Fed's Bullard: QE3 possible depending on data: report

The U.S. Federal Reserve could embark on a third round of quantitative easing depending on upcoming economic data but should first confirm that inflation has eased, a senior Fed official said in the Asahi newspaper on Wednesday.

The Fed will need to confirm whether its economic outlook is still on track at a policy meeting next month and weigh the best options if additional easing is needed, St. Louis Fed President James Bullard said in an interview with the Japanese daily.

Expectations are growing that the central bank could ease policy at its two-day meeting starting September 20 after minutes from last month's gathering showed some policymakers pressed for bold and unconventional steps to shore up a flagging economy.

Depending on future economic data QE3 is one choice, but we need to gather information about how the economy will perform in the second half of the year, Bullard said in the Asahi, referring to the Fed's quantitative easing program where it buys government debt.

Before any moves, I would like to confirm that inflation is easing.

The head of the St. Louis branch does not have a vote on the policy-setting Federal Open Market Committee this year.

Bullard reiterated his view that if the Fed were to buy additional government debt it should do so incrementally, on a meeting-by-meeting basis. Bullard is known for his hawkish views on monetary policy.

The U.S. economy is likely to grow 2.5 percent in the second half of the year, the Asahi also quoted Bullard as saying.

The Fed has a $600 billion quantitative easing bond-buying program, known as QE2. In addition, U.S. interest rates are already near zero and the Fed has signaled it is willing to hold borrowing costs at that level for two years if necessary.

(Editing by Joseph Radford)