By Alister Bull

"We will not shy from pursuing every practicable means of supporting the functioning of financial markets and stimulating the economy back to a steady state by employing new techniques that fit the current circumstance," Fisher, a top Fed policy-maker, told a World Affairs Council of Dallas/Fort Worth luncheon.

"We stand ready to grow our balance sheet even more should conditions warrant. For example, we will expand purchases of mortgage-backed securities, should we feel such purchases would be productive," he said.

Fisher, a well-known inflation "hawk," said at the current time the biggest concern for policy-makers was deflation and it could worry about inflation later.

"Price pressures now are in the other direction," he said. "We have to do everything we can to lift the economy up and prevent deflation from taking (hold)."

Fisher is a voting member of the Fed's interest-rate setting committee this year and therefore supported the Fed's dramatic decision on Tuesday to hack its interest rate target to a range of between zero and 0.25 percent, from 1 percent.

He said the Fed knows it needs "an exit strategy" from its current policy course once the economy begins to recover and when that happens he will take up the cudgels against inflation once more.

"We're well aware that at some point, God willing, we'll have to tighten and we'll have to act and I'm here to tell you that my voice will be very loud at that juncture but right now that's not the issue," Fisher said.

With interest rates now effectively at or very near zero, the U.S. central bank has deployed a fleet of innovative, unconventional tools to protect the economy.

This recalls the quantitative easing used by the Bank of Japan to end a decade of stagnation in the 1990s. Fisher said the Fed's focus was on the other side of the balance sheet; on assets rather than liabilities, in an effort to lower private sector borrowing costs and boost spending.

"We believe that emphasizing the asset side of the balance sheet will do more to improve the functioning of credit markets and restore the flow of finance to the private sector.

"In the parlance of central banking finance, I consider this a more qualitative approach to 'quantitative easing,'" he said.

The U.S. economy entered a recession last December and Fisher made plain that it would shrink by between 4 percent and 5 percent this quarter and not begin to recover until the second half of next year.

"Industrial production is falling sharply; consumption is cascading downhill; demand has evaporated as businesses and consumers alike pull in their horns and de-lever from excess indebtedness that fueled the prior boom," he said.

This has destroyed about 2 million U.S. jobs this year and Fisher warned the damage would continue to mount.

"Unemployment has increased to 6.7 percent at the last reading and appears to me to be headed in the direction of, and possibly past, 8 percent," he said.

(Additional reporting by Glenn Somerville; Editing by Neil Stempleman)