WASHINGTON - New York Federal Reserve Bank President William Dudley said Thursday there is a legitimate question whether the Fed can do more, but the decision to execute further monetary policy steps will depend on the course the economy takes, which is not clear now.

In an interview with CNBC, Dudley said, "My view is that, if we continue to see improvement in the economy, in terms of using up the slack in available resources, then I think it's hard to argue that we absolutely must do something more in terms of the monetary policy front."

Dudley noted that he is "a little bit more confident that the economy's going to keep growing ... I'm a little bit less worried about a Japanese-style deflation outcome. And that was really the reason that, for me personally, motivated the need for further monetary policy action."

However, he cautioned that if the situation were to change it would be appropriate to respond with more monetary policy steps.

If the deflation risk were to reemerge or "If downside risks from, say, Europe or the U.S. fiscal cliff were to really intensify, then I think you'd absolutely have to consider further monetary policy moves," he said.

Pressed on whether the Fed should have something in place to replace "Operation Twist," Dudley said, "I think it's going to depend on where we are once we get further down the road. So I wouldn't prejudge whether we're done or whether we're going to need to do more. It depends on what happens in the economy."

The economy is heading in the right direction though not "fast enough," he said, calling the expected 2.4% growth this year "pretty disappointing," according to CNBC.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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