FOMC Voting Member Sandra Pianalto Offers a Positive Spin on Economy, then Mentions the 'Unchartered Waters Cliche' and Admits Unconventional Tools Have Unknown Costs ...

NEW YORK (Dow Jones)--While there are signs the U.S. is starting to recover from the deepest downturn since the Great Depression, the Federal Reserve has options if the economy ends up needing more help to heal, Cleveland Federal Reserve President Sandra Pianalto said Thursday.
.
Pianalto pointed to hopeful signs for consumers and businesses. Consumers are saving more, helping to improve their financial situations, and businesses' aggregate profits have returned to levels that are more in line with what is typically seen following recessions, she said. The private sector is also adding jobs and the U.S. has positive GDP growth. The economy is growing and she expects it will continue to do so in 2011.
.
"There are some signs that the economy is beginning to mend," she said.
.
However, the current pace of growth is not fast enough to make much progress in lowering the stubbornly high unemployment rate, Pianalto said. Inflation is also too low, Pianalto said, and she expects it to remain near its current low level through next year, lower than the roughly 2% rate that she sees as consistent over the long run with the Fed's objectives.
.
Pianalto was delivering prepared remarks as part of a discussion hosted by the Women's Economic Roundtable in New York. She is a voting member of the interest rate setting Federal Open Market Committee this year.
.
Her comments come amid continued talk in financial markets about if and when the Fed could kick off another so-called quantitative easing program to help the economy by buying Treasury securities. The Fed began buying Treasurys again last month on a small scale, using proceeds from its maturing mortgage bonds. Given recent soft data though, most market participants are convinced the Fed will have to relaunch a formal, larger-scale bond buying effort before the end of the year.
.
In her prepared remarks, the central banker said that monetary policy is highly accommodative and that if further accommodation is needed, the Fed has options available to it, but policymakers must tread carefully.
.
"We are in unchartered waters," Pianalto said. "History does not provide a complete guide for the unconventional policy tools we are using, which is why it is important that we continue to examine the costs and benefits of these tools."
.
If additional accommodation is needed, Pianalto said, she wants to ensure that the framework the Fed employs is an effective one.
.
-By Deborah Lynn Blumberg, Dow Jones Newswires; 212-416-2206; deborah.blumberg@dowjones.com
.
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=6h6YGNP9c8FNJ81xE5GZNw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
September 30, 2010 18:16 ET (22:16 GMT)

Copyright (c) 2010 Dow Jones & Company, Inc.- - 06 16 PM EDT 09-30-10
.