Janet Yellen, head of the San Francisco Fed, cited "significant downward pressure based on recent data indicating further weakening in the housing sector and the tightening of financial markets.'' Atlanta Fed President Dennis Lockhart said employment began softening in June. He also declined to repeat remarks he made just four days ago that there weren't "conclusive'' signs of a faltering economy.
Treasuries rallied as traders interpreted their remarks as signaling an interest-rate cut next week in order to preserve the six-year expansion.
Yellen's remarks are "a clear sign that she will be arguing for a rate cut,'' said Allen Sinai, president of New York-based Decision Economics. ``There's not much to lose for the Fed in cutting rates on Sept. 18. There's potentially a lot to lose if they don't cut rates, in terms of the economy and the markets.''
Separately, Dallas Fed President Richard Fisher said that he's "generally encouraged'' about the state of the economy and that the August job losses represented an "occasional discordant note.'' Fed Governor Frederic Mishkin speaks later today.
Payrolls are one of the main indicators, along with sales, wages and production, which help determine the start of economic contractions.
"It is critical to take a forward-looking approach -- gauging the effects of recent developments on the outlook, and, importantly, the risks to that outlook,'' Yellen said in a speech to a conference in San Francisco. Declining home prices and rising unemployment may cause ``significant'' risks to consumer spending, she said.
Lockhart and Yellen both vote on rates in 2009, though they participate in the FOMC discussions. Officials gather in Washington on Sept. 18.
Gains in Treasuries sent the yield on the benchmark two-year note down to the lowest since September 2005. The yield fell to 3.83 percent at 12:17 p.m. in New York, below the Fed's 5.25 percent target rate for overnight loans between banks. Stocks fell.
Employers cut 4,000 workers in August, the Labor Department said Sept. 7. None of the 88 economists surveyed by Bloomberg News predicted a decline. Revised figures showed job gains slowed from a 188,000 pace in May to 69,000 in June and 68,000 in July.
Impact of Jobs Figure
"Last Thursday, I said in a speech that I have not seen conclusive signs of weakness in the broader economy,'' Lockhart said at an event sponsored by the Atlanta Business Chronicle. "Friday's data, however, shows employment was beginning to soften back in June. This news should be evaluated with recently positive reports in retail sales.''
Philadelphia Fed President Charles Plosser said at the weekend that policy makers shouldn't put too much stress on the loss of jobs in August, and that he hadn't made up his mind yet on a rate cut.
"We want to be careful not to overweight one piece of information,'' Plosser said in an interview after a speech in Waikoloa, Hawaii, on Sept. 8. While the employment drop "was not encouraging,'' he said ``there's a lot of conflicting data out there,'' noting gains in retail sales.
Economists and investors expect the Federal Open Market Committee to lower its main interest rate by at least a quarter- percentage point from 5.25 percent next week.
After the Fed on Aug. 7 said inflation was still its "predominant'' concern, the central bank revised its outlook on Aug. 17 to say that economic risks had risen ``appreciably.''