By Mark Felsenthal
JACKSON, Mississippi (Reuters) - A voting member of the Federal Reserve's policy-setting body said on Friday he has edged closer to supporting another round of quantitative easing if the sluggish economy can't shake its doldrums.
"My support for the current stance of policy rests on a forecast that sees a step-up of output and employment growth by year-end and into 2013," Atlanta Fed President Dennis Lockhart told a business group.
"If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it," he added.
Lockhart said in response to a direct question about whether he supports a third round of quantitative easing that he is still "on the fence" about it. But he made clear that a string of gloomy reports have him moving closer to believing aggressive further stimulus may be necessary.
"I have been watching the economic data and listening to what people tell us about what's going on in the economy with increasing concern," he told reporters later. "And in that sense, my receptivity has increased a bit."
In his last public statements, Lockhart had said the economic outlook would have to deteriorate before further monetary policy stimulus would be warranted. Since then, the government reported that employers hired fewer people than economists expected in June and the jobless rate held steady at a lofty 8.2 percent.
He said on Friday Fed officials are divided among those who think the outlook as is calls for further policy action before long and those who think further aggressive action should be held in reserve in case the situation gets worse.
The Fed meets at the end of the month, with a policy decision expected August 1. Many analysts expect the Fed to launch a third round of bond buying to boost growth later this year.
Such a move would add to the Fed's accommodative actions, which include keeping rates at near zero for 3-1/2 years, $2.3 trillion in bond purchases, a conditional pledge to hold borrowing costs at rock-bottom levels through at least late 2014, and shift in the average maturity in its portfolio to push down longer-term interest rates.
Lockhart said he had already cut his forecast for growth and job market gains at the Fed's June meeting.
"Incoming data have disappointed over the course of the first two quarters of the year," he said on Friday. In addition, risks of a shock have risen with economic turmoil in Europe, uncertainty over year-end U.S. tax increases and spending cuts, and a global slowdown, he said.
"It's possible another policy decision looms," he said. "My colleagues and I on the (Fed) may confront a decision on whether to respond more aggressively to the economy's apparent weakness."
Lockhart said that if the Fed decides to go on another bond buying spree, mortgage-backed securities might be part of the mix to give downtrodden housing markets a boost.
(Editing by Andrea Ricci)