CLEVELAND, Ohio (Reuters) - The U.S. Federal Reserve faces risks if it takes more policy action or if it withdraws monetary accommodation, making the central bank’s “already quite accommodative” stance fine for now, a top U.S. Federal Reserve official said on Thursday.
Pianalto described the Fed’s current stance as appropriate, though she nodded to a recent string of stronger economic data.
“It’s an appropriate policy. I think it has us on a path for continued, steady growth and output, which will then lead to more employment growth, but keeping prices stable,” Pianalto said in a rare question-and-answer session with reporters.
“There’d have to be a significant change to my outlook to change my position on policy at this time.”
While taking more action to boost the economy could create too much inflation risk, doing less could risk weakening the recovery and causing disinflation, Pianalto said at an event hosted by The City Club of Cleveland earlier in the day.
Pianalto, a voting member this year on the Fed’s policy-setting panel, acknowledged the relatively stronger economic data since the start of the year, but also noted the recent spike in oil prices and housing rents ”could complicate the inflation picture if they persist.
“Economic data has been improving, and we’ll continue to take all new information into account as we prepare our outlook” for the next Fed meeting, Pianalto later told journalists.
Pianalto expects economic growth of about 2.5 percent this year and inflation of about 2 percent.
The comments align Pianalto with Fed Chairman Ben Bernanke, who at a congressional hearing on Wednesday defended the Fed’s aggressive steps in the last few years to revive the economy after a brutal recession.
Others, both inside and outside the Fed, want it to do more to kick-start the slow recovery, or to begin to unwind its unprecedented actions.
Pianalto on Thursday backed a January statement by the Fed’s policy-setting committee, which said it expected to keep rates exceptionally low at least through late 2014.
“I would prefer nothing more than to support an increase in interest rates before late 2014 on the basis of a brighter outlook for economic growth - but I‘m not there yet,” she said.
Pianalto is a moderate dove typically in line with Bernanke’s core of policymakers who have kept interest rates near zero since late 2008 and bought some $2.3 trillion in longer-term securities to help lower unemployment, which is now at 8.3 percent.
She repeated comments made earlier this week that it could take up to five years to bring the unemployment rate down to 6 percent again.
Reporting by Leah Schnurr; Additional writing by Jonathan Spicer in New York; Editing by Padraic Cassidy