More Money Printing? Here's How It Could Happen

Andrew Harrer | Bloomberg | Getty Images

Sheets of five dollar notes go through a machine to receive a serial number and the seals of the U.S. Treasury and Federal Reserve at the Bureau of Engraving and Printing in Washington, D.C., U.S.

While talk around Federal Reserve policy has focused on tapering off its easing measures, a weakening economy likely will keep the central bank in the game and could even lead to more aggressive measures.

The Fed has been pumping in $85 billion worth of liquidity each month in hopes of lifting asset prices and boosting economic growth.

But even as stock market prices soar to new highs, economic gains have been elusive, and expectations are growing that the spring-into-summer swoon the U.S. has seen over the past several years is reappearing.

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That will make a Fed exit more difficult, despite Chairman Ben Bernanke's hopes to begin to pull back the throttle.

"Warning signs pointing to further disinflation have multiplied in recent weeks," Brian Smedley, rates strategist at Bank of America Merrill Lynch, said in a recent report for clients. "U.S. economic data has disappointed as fiscal tightening begins to bite."

Those two measures—inflation and economic news, particularly unemployment—are key for monetary policy, and both points toward more, not less, monetary easing.

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Smedley is the first strategist at a major investment house to posit that the Fed could accelerate its own efforts.

"It was concerns about the sluggish recovery and downside risks to growth that prompted the Fed to announce open-ended asset purchases in the first place," he said. "Fed officials have emphasized repeatedly that they intend to take a flexible approach to this purchase program."

Though his most likely scenario is that the Fed maintains its monthly purchases of $45 billion in Treasurys and another $40 billion in mortgage-backed securities, he said an increase in the former could happen if inflation and employment remain below acceptable levels.

The alternative scenario could see the Fed increase its Treasurys purchases to $65 billion to $70 billion a month, which Smedley said it could do for four to six months "without compromising market functioning, but this risk would bear careful monitoring."

Global central banks have not been shy about showing aggressiveness toward propping up the slowing economy.

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Japan, Israel and Sweden, along with dozens of others, said in a survey by Central Banking Publications and the Royal Bank of Scotland that they own equities and are preparing to increase their stakes.

While the Fed has not gone that far, the troubled economy likely will keep up the pressure to continue its efforts, which include holding its target funds rate near zero.

Policymakers will learn a bit more about the economy Friday when the initial print on first-quarter gross domestic product growth hits. However, even if the release shows growth above 3 percent, as many economists expect, signs are growing that the second quarter will not be nearly as robust.

"Our sense from recent client meetings is there's an ongoing assessment taking place about just how much expectations need to be scaled back," economists at RBC Capital Markets said in a note.

"Because keep in mind, it's not that recent data suggest an imminent or hard slowing is in tow. Rather, lofty expectations need a haircut," they added. "Stated differently, the overly optimistic got burned again."

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RBC said it expects GDP to slow to 1 percent for the second quarter.

Throw in recent findings that income disparity between the rich and poor has grown since the stock market recovery, and it's even more incentive for the Fed at least to stay put—or perhaps go even faster.

"Practically speaking, we don't believe some magical number will dictate Fed policy. What we think the Fed wants to see is a backdrop that ceases to be so uneven," RBC said. "Such a jagged backdrop, if it continues, will keep the Fed fully engaged in buying up assets."

—By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.