(Adds comments on risks, future plans)
By Jonathan Spicer
Feb 26 A long-serving Federal Reserve
policymaker on Wednesday praised the U.S. central bank's use of
both asset purchases and so-called forward guidance on interest
rates as effective tools that have helped the U.S. economy
recover from recession.
Sandra Pianalto, who is stepping down at the end of May
after 10 years as president of the Cleveland Fed, said however
the cost of those policies needs to be measured against possible
market disruptions and financial instabilities.
"It's important for us to weigh those potential costs of a
program like this ... against the benefits," she said at the
College of Wooster.
In what is likely one of her last speeches as a monetary
policymaker, Pianalto also predicted that new Fed Chair Janet
Yellen would continue "building consensus and being open-minded"
at policy-setting meetings in the years ahead.
Meantime, after leaving the Fed, Pianalto said she intends
to work to improve education in her home state of Ohio, which
has recently slipped by some measures.
To support the economic recovery from recession, the central
bank has kept interest rates near zero for more than five years
and is now buying $65 billion in bonds each month in its latest
round of quantitative easing.
"Today we are in our third round of QE, and studies show
that the asset purchases have succeeded in pushing down
longer-term interest rates and have generally eased financial
conditions," Pianalto said in her speech.
Turning to the Fed's promise to keep rates near zero until
well after the U.S. unemployment rate falls below 6.5 percent,
Pianalto said: "This unconventional tool has also proven itself
The jobless rate currently stands at 6.6 percent.
The Fed has modestly trimmed its bond-buying program in each
of the past two months, and it plans to raise rates some time
next year as long as the economy continues to improve.
Pianalto, a Fed employee of more than 30 years, is a quiet
centrist and strong backer of the aggressive monetary response
to the 2007-2009 financial crisis. She has a vote on policy this
year, though she has not dissented once in her time as a Fed
Addressing students and others at the college, which webcast
her speech, Pianalto defended her voting record, noting that
dissents have been very rare over the last decade.
The Fed's "nearly unanimous voting record is extraordinary
given everything we have gone through since the financial
crisis, severe economic recession, and ensuing slow recovery,"
Loretta Mester, director of research at the Philadelphia
branch of the central bank, will succeed Pianalto on June 1.
(Reporting by Jonathan Spicer; Editing by Leslie Adler and Lisa