A deep-seated anxiety about how soon the Federal Reserve will raise rates has caused the widest chasm between short- and long-dated Treasury yields in 20 years.

It is "not quite time yet" to raise interest rates in the U.S., Charles Plosser, president of the Federal Reserve Bank of Philadelphia, told CNBC Thursday.

As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is out of work or under-employed.

Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, underscoring that deflation is still a threat, especially with commercial real estate prices falling.

The dollar and yen rose Thursday as a pullback in risk appetite amid declines in equity and commodity markets revived safe-haven demand for the U.S. and Japanese currencies.

"Until you get the small business sector back on its feet and get it vibrant, you are basically knocking out about 20 percent of the GDP," said Camden Fine, president & CEO of Independent Community Bankers of America. "And it's hard to have a robust recovery if you have 20 percent of the GDP lagging."

A senior Federal Reserve official said Wednesday that the U.S. central bank may start tightening financial conditions by selling assets it has accumulated rather than raising interest rates.

Sometimes stating the obvious and repeating it frequently can be a very effective policy, especially in managing inflation expectations.

The dollar fell against most major currencies Wednesday as dealers took profits on the currency's biggest rise in three weeks, with fresh data doing little to alter the view that U.S. interest rates will remain at record lows well into 2010.

A senior Federal Reserve official said sluggishness in pockets of the US economy should not deter the Fed from beginning to remove its extraordinary economic support.

U.S. producer prices rose more slowly than expected in October despite a rebound in food and energy costs, according to a government report on Tuesday that pointed to tame inflation pressures.

Federal Reserve Bank of San Francisco President Janet Yellen said on Tuesday the U.S. economy would grow into next year and accommodative policies could not be maintained for too long.

The dollar rebounded Tuesday from a 15-month low after Federal Reserve Chairman Ben Bernanke's rare comments on the currency spurred traders to trim long-term bets against the greenback.

The Fed's low interest rate policy has allowed investors to move into riskier assets in order to promote economic recovery, and there are no signs a U.S. asset bubble Building up for now, the central bank's number-two official said.

"I haven't been this bearish in a year," the well-known analyst told CNBC in a live interview. "I look at the board and every single stock is up.  But there is no fundamental rooting as to why."