(Adds comments on inflation)
By Michael S. Derby
NEW YORK--A veteran central-bank official on Friday said the
time may be coming when the Federal Reserve should start ramping
down its purchases of Treasury and mortgage bonds.
"While our policies have been effective, our experience with our
asset-purchase programs is limited and, as a result, we must
analyze their benefits and costs carefully," Federal Reserve Bank
of Cleveland President Sandra Pianalto said.
"Over time, the benefits of our asset purchases may be
diminishing," the official said, as she pointed to a number of
concerns she has with the program. While the nonvoting member of
the Federal Open Market Committee said Fed bond buying and other
stimulus have helped to get the economy back on its feet, there are
a number of risks that, once considered, may call for changes in
the pace of purchases.
"It is critical that we take these risks into consideration" as
officials look to the future, Ms. Pianalto said.
"To minimize some of these risks, we could aim for a
smaller-sized balance sheet than would otherwise occur if we were
to maintain the current pace of asset purchases through the end of
this year, as some financial market participants are expecting,"
the policy maker said. "This course of action would be all the more
attractive if the economic outlook continues to improve, as I
expect it will," Ms. Pianalto said.
The Fed is currently pressing forward with an open-ended program
to buy bonds to boost growth and lower unemployment. While most
expect these purchases to continue through much of the year, some
central bankers have been arguing that it soon may be time to make
the bond-buying program smaller as the economy's recovery picks
up.
Ms. Pianalto's comments came from the text of speech she was
giving in Bonita Springs, Florida.
In her speech, the official said that she expects the U.S.
economy to grow by 2.5% this year and by 3% in 2014. That growth
will bring only a slow retreat from what is now a 7.9% unemployment
rate. Ms. Pianalto sees the jobless rate at 7.5% by year end and 7%
by the close of 2014. She flagged the recovery in housing and said
she expected to see a positive wealth effect that could lift
consumer spending.
In comments given in response to audience questions, Ms.
Pianalto said it remains critical that the Fed deliver on its
mandate to keep prices stable. "Inflation has stayed low and
stable, in fact, in 2012, we were concerned we would face a
disinflation environment," she said. "It is important for the
Federal Reserve to manage inflation expectations and to monitor
them," the official said.
--Christopher Guinn contributed to this article
Write to Michael S. Derby at michael.derby@dowjones.com.