Fed’s Pianalto Says Continued Weakness May Warrant Easing

Federal Reserve Bank of Cleveland President Sandra Pianalto said additional weakness in the U.S. economy may spur the central bank to ease policy further.

“If recent weak economic data persist and cause my outlook for economic growth and inflation to become weaker than I currently anticipate, additional policy actions could be warranted,” Pianalto said today in the text of prepared remarks given in Erie, Pennsylvania.

The policy-setting Federal Open Market Committee extended its so-called Operation Twist program last month in an effort to lower interest rates and spur hiring. Progress in reducing unemployment is likely to be “frustratingly slow” and the central bank is prepared to take further steps to boost the recovery, Chairman Ben S. Bernanke told Congress today.

“If warranted, further asset purchases would have benefits,” the Cleveland Fed chief said at Pennsylvania State University’s Behrend College in Erie.

Speaking before the Senate Banking Committee today in Washington, Bernanke said the Fed’s easing tools include further asset purchases, reducing the interest rate the central bank pays on reserves banks keep with the Fed and altering its communications on the outlook for interest rates.

‘Limited Experience’

Pianalto added today that the U.S. central bank has “limited experience” using securities purchases to bolster the economy and called for “more analysis” on the benefits and the costs associated with such options.

“We are using large-scale asset purchases as a policy tool in an unusual financial and economic environment -- one in which future benefits may be more muted,” she said. “It is conceivable that, at some point, policies designed to promote further declines in rates could interfere with financial stability.”

The Standard & Poor’s 500 Index (SPX) increased 0.8 percent today to 1,363.90 at 1:32 p.m. in New York.

Pianalto, 57, votes this year on the FOMC. She has been president of the district bank since 2003.

To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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