Although the unemployment rate slipped to a still high 8.2 percent in March, jobs growth slowed sharply, raising fears the labor market could start to sputter as it did a year ago. Nonfarm payroll employment rose by only 120,000 last month, roughly half the gains in each of the previous two months.

Cleveland Fed President Sandra Pianalto, a voter this year on the central bank's policy-setting panel, called the March job gains "meager" and illustrative of "the uneven pattern" of economic activity.

"Monthly ups and downs like these make it hard to confirm the underlying pace of job creation," she said at a bankers' event in Lexington, Kentucky, citing the robust jobs reports in January and February. "So it seems as though the labor market is still improving, albeit at a modest pace."

St. Louis Fed President James Bullard, who does not have a vote on policy this year, called the report "mediocre," but added: "It's just one piece of the puzzle. Certainly viewed in a broader context, the jobs reports have been strong."

The stubbornly high jobless rate has frustrated the Fed, which in late 2008 slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.

BULLARD SEES INFLATION RISK

The Fed meets next week on Tuesday and Wednesday, when it is not expected to adopt any fresh policy measures beyond its ultra-easy monetary stance, but rather use the meeting to discuss the latest economic developments and further refinements to its communications strategy.

Central bank officials have suggested the economy would need to deteriorate, and inflation would need to remain below a 2 percent target, for them to consider more stimulus in the form of bond purchases - a controversial move that would increase the Fed's balance sheet from almost $3 trillion.

"I still think the economy is on track for right now, and the best thing to do is gather more information and see if the improvement in the economy in 2012 can sustain itself," Bullard told reporters after addressing students at the Utah State University Jon M. Huntsman School of Business.

The Fed is taking on a lot of inflation risk with its bond buys, added Bullard, a policy centrist.

Still, a Reuters poll conducted after the release of the disappointing March employment figures found most Wall Street primary dealers think a third round of Fed bond-buying will eventually take place.

At its last two meetings, the central bank said it expected to keep rates "exceptionally low" at least through late 2014. Fed policymakers, however, give individual forecasts, and Bullard said on Monday that he still expects the Fed to raise rates late in 2013.

Pianalto, a moderate policy dove more in line with Fed Chairman Ben Bernanke, said the economy needs to grow at a faster rate in order to speed up the pace of employment growth and repair damage from the 2007-2009 recession, though she did not comment specifically on policy.

"If our economy were a Kentucky thoroughbred, I'd say we have moved from a walk to a trot, but we're far from a gallop," Pianalto said.

(Reporting by Jonathan Spicer in New York and Debbie Hummell in Logan; Editing by Jan Paschal)

• A Permanent Economic Emergency