Pianalto Repeats Backing for $600 Billion Bond Program

Federal Reserve Bank of Cleveland President Sandra Pianalto reasserted her support for the Fed’s $600 billion bond purchase program and said it will help to bring inflation in line with the Fed’s goals.

“Our policy action offers the right kind of insurance that the Federal Reserve’s monetary policy will support the economic expansion while stabilizing inflation and inflation expectations consistent with our price stability mandate,” she said in a speech today at Oberlin College in Oberlin, Ohio.

Policy makers, led by Chairman Ben S. Bernanke, are defending the Fed’s Nov. 3 decision to buy $600 billion in Treasury securities through June to help promote economic recovery and prevent inflation from falling too low. They’re facing criticism from economists and Republicans in Congress, who said the plan risks fanning inflation, creating asset bubbles and weakening the dollar.

A Fed report released yesterday shows the economy gaining strength across much of the U.S. as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season. Five Fed banks, including Boston and San Francisco, said the economy grew “at a slight to modest” rate, while five others, including New York and Chicago, reported a “somewhat stronger pace of economic activity.”

Fed officials are testing the boundaries of unconventional monetary policy by relying on tools used during the financial crisis to aid an economy that’s expanded for more than a year.

Recent Meeting

At the committee’s most recent meeting, policy makers agreed to adjust the bond purchases “as needed,” while leaving in place a pledge to keep interest rates low for “an extended period.”

The round of purchases announced last month follows a previous $1.7 trillion bond-purchase program, a strategy which economists call quantitative easing because it aims to increase the quantity of bank reserves.

Pianalto said she expects core inflation “to remain quite subdued through 2013,” and that she’s confident the Fed’s policy-making committee “has the resolve and tools to counteract” any buildup of inflation pressure.

Pianalto, 56, became president of the Cleveland Fed in 2003. She is a voting member of the Federal Open Market Committee this year and has never dissented from a FOMC decision. Fed presidents rotate voting on monetary policy, with Pianalto voting every other year.

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