Uncertainty seen persisting, along with Fed's divide

By Ann Saphir

LOS ANGELES (Reuters) - With two weeks to go until their next policy meeting, U.S. central bankers appear unconvinced a partial U.S.-China trade deal is enough to dispel the policy uncertainty that has weighed on economic growth for months.

And yet, with unemployment at decades-long lows and consumer spending strong, Federal Reserve policymakers remain far from united behind cutting borrowing costs any further than they already have.

"Right now, I see the economy in a good place, and policy accommodation in a good place," San Francisco Fed President Mary Daly told reporters after a speech a the Los Angeles World Affairs Council & Town Hall.

Businesses retain an overarching sense of uncertainty, she said, even though "the gusting (of headwinds) seems to have gone down a little bit on the news of some progress on Brexit, some progress on trade negotiations between the U.S. and China," she said.

Weak inflation, including fresh data on Tuesday showing the three-year inflation outlook among U.S. consumers falling to its lowest level on record, has her attention, she said.

But Daly said she still expects inflation to rise back to the Fed's 2% target, and believes the central bank's two rate cuts so far this year, in July and September, will help sustain the longest U.S. expansion in history.

"In terms of what to do going forward, I would like to see additional data, because the economy is in a really good place right now," Daly said.

Speaking in London earlier in the day, St. Louis Federal Reserve Bank President James Bullard painted a gloomier picture.

Like Daly, he sees what he called continued "trade regime uncertainty" as a key risk to the U.S. economy.

But other risks remain high as well, including continued weak inflation and slowing global growth.

And unlike Daly, who said she sees policy as currently "slightly accommodative", Bullard said in his view it may be "too restrictive".

As a result, the Fed "may choose to provide additional accommodation going forward, but decisions will be made on a meeting-by-meeting basis," he said in remarks to a conference in London on Tuesday.

Neither Daly nor Bullard speak for the Fed's policy setting panel as a whole, made up as it is of 17 different people with sometimes sharply different views.

But they do represent two broad groups within the central bank: those who like Fed Chair Jerome Powell believe the outlook is generally positive, and those who believe the U.S. economy needs even easier policy to avoid sinking into a recession.

A third group believes the Fed has already gone a bit too far in lowering rates, and fears too-easy policy could lead to financial instability if investors take on too much risk and asset values get stretched.

Those clashing views were on display when the Fed in September cut its policy rate by a quarter of a percentage point.

The decision, which lowered the Fed's policy target to a range of between 1.75% and 2.0%, drew three dissents out of 10 total votes. Minutes of the meeting suggested at least two of the seven non-voting Fed policymakers also disagreed with the move.

Investors by and large expect Fed policymakers to reduce rates when they next meet Oct. 29-30.

(With reporting by Marc Jones and Dhara Ranasinghe in London and Howard Schneider and Lindsay Dunsmuir in Washington; Editing by Paul Simao and Lincoln Feast)

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