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(Reuters) – Federal Reserve officials on Friday said they were keeping an eye out for any signs that slowing growth is raising deflation risks but differed on how worrisome sluggish job markets are for the modest U.S. economic recovery.

New York Federal Reserve Bank President William Dudley, a close ally of the U.S. central bank’s chairman, Ben Bernanke, said he had modestly lowered his expectations for inflation in coming months.

He said he would need to see more information on the U.S. jobs market and the unfolding of the European sovereign debt crisis before having a clearer sense of the health of the U.S. economy.

A permanent voter on the Fed’s policy-setting panel, Dudley said employment growth has “slowed considerably of late” as the economy has lost momentum.

The New York Fed leader has a reputation as a policy dove and has supported aggressive measures to boost growth and bring down high unemployment. He focused on the economic outlook and did not discuss in any detail the Fed’s decision last week to boost monetary stimulus for the sluggish U.S. recovery or whether more monetary easing might be needed.

“Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further,” Dudley told the Puerto Rico Chamber of Commerce.

“I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further,” he said.

Another policymaker who has opposed expanding Fed support for the recovery, St. Louis Fed President James Bullard, said he had argued against the expansion last week of the portfolio rebalancing initiative referred to as Operation Twist, but ultimately supported Bernanke’s decision.

Bullard also said it would take more than a continuation of weak job growth to spur the Fed to a third round of quantitative easing.

“To get to QE3 you’d have to see a sharp drop-off in economic activity in the U.S. or a clear threat of deflation,” he told reporters after a speech to local business and community representatives. “I don’t think, at least as things stand right now, we don’t see either one of those.”

Bullard said that he anticipates sluggish job growth in coming months. The St. Louis Fed president is not a voter this year on the policy-setting panel and is seen as being at the center of the spectrum of Fed views, which shade from urging greater action to lower the jobless rate to concern that ultra-easy money should be curtailed at the earliest opportunity.

Three consecutive months of disappointing U.S. jobs growth and the simmering euro zone debt crisis led the Fed at its latest scheduled meeting last week to extend by six months and $267 billion a bond maturity-extension program called Operation Twist.

The Fed cut U.S. interest rates to near zero more than three years ago and has pledged conditionally to hold benchmark borrowing costs at that level through late 2014 in an effort to spur growth. The central bank has also bought $2.3 trillion in bonds through its first two quantitative easing initiatives.

Also last week, the Fed slashed its expectations for economic growth over the next two years and trimmed an inflation prediction, while raising expectations for the unemployment rate, which in May stood at 8.2 percent.

However, it held off on another round of bond-buying.

Wall Street bond firms polled after the Fed’s most recent meeting saw a 50 percent chance of another asset purchase program.

Some Fed officials have suggested risks from the euro zone crisis point to a need for further easing measures as a precaution. However, Bullard said risks from that crisis have caused only modest strains in U.S. financial markets.

Another Fed official, Boston Fed President Eric Rosengren, on Friday suggested expanding bank “stress tests” to include the likely support those institutions would need to provide to sponsored money market mutual funds.

The vulnerabilities of money market mutual funds, which, unlike bank accounts, do not offer deposit insurance, came to light during the 2007-2009 financial crisis, and have surfaced anew in connection with the euro zone upheaval.

New York’s Dudley voted for the Operation Twist extension despite having said on May 30 that, for now, additional Fed stimulus was not warranted.

Giving more detail than in a speech a month ago, and citing falling gasoline prices, Dudley on Friday said he expects inflation to decline “a bit in coming months, falling somewhat further below our 2-percent objective.”

Illustrating competing views that are likely to make any Fed decision on further action highly contentious, Bullard repeated his more hawkish warning that the Fed’s bloated balance sheet – which has ballooned to around $2.8 trillion as a result of its bond-buying sprees – could be an inflation risk if the recovery accelerates suddenly.

However he also said that inflation is not now a problem and that there is no danger of an inflationary psychology taking root. Bullard acknowledged that gross domestic product growth is falling short of expectations, saying he had lowered his GDP forecast for 2012 to a 2.4 percent annual rate of increase.

(Editing by James Dalgleish)