Fed's Pianalto sounds caution on continued bond-buying

Wed Nov 6, 2013 1:50pm EST

A general view of the U.S. Federal Reserve building as the morning sky breaks over Washington, July 31, 2013. REUTERS/Jonathan Ernst

A general view of the U.S. Federal Reserve building as the morning sky breaks over Washington, July 31, 2013.

Credit: Reuters/Jonathan Ernst

(Reuters) - The Federal Reserve should be cautious as it continues to buy up bonds, given the "uncertain economic environment" and the central bank's limited experience with such quantitative easing programs, a top Fed policymaker said on Wednesday.

"My hope is that the economic recovery will accelerate so that the (Fed) gains the reassurance it needs to begin winding down the program," Cleveland Fed President Sandra Pianalto told an Ohio housing conference.

"While to date the risks have mostly remained theoretical, I remain convinced that we need to be cautious in our expansion of asset purchases," she said, largely repeating her message from last month.

Pianalto, who has consistently supported Fed Chairman Ben Bernanke's unprecedented efforts to quicken the U.S. economy's slow recovery from recession, is set to retire early next year after a decade at the helm of the Cleveland Fed.

Her successor will have a vote on policy in 2014, a year in which the central bank will likely make tough decisions about the pace with which to slow its asset purchases.

The central bank has bought $85 billion in Treasury and mortgage bonds each month since September, 2012, in order to spur investment and hiring. It has also promised to keep interest rates near zero until unemployment - which was 7.2 percent in September - falls to 6.5 percent.

"Even when the rate of purchases is slowed and eventually stopped altogether, an accommodative monetary policy will still be needed to support the economy," Pianalto said.

Turning to the economy, she said tight mortgage-credit markets will continue to hold back the recovery in U.S. housing, and she predicted that consumer spending will continue "at a moderate pace" for some time.

The "housing sector still has a way to go to regain the vitality it enjoyed prior to the recession," she said, citing existing home sales and residential building.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

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