UPDATE 1-Fed’s Pianalto says easing was needed for recovery

* Fed recent move aimed to support recovery – Pianalto

* Says action offers “right kind of insurance”

* Sees deflation unlikely
(Adds details of speech, background, byline)

By Marsha Lynn Bragg

OBERLIN, Ohio, Dec 2 (BestGrowthStock) – The Federal Reserve’s
latest drive to push down borrowing costs was necessary to
support a frail economic recovery, Cleveland Fed President
Sandra Pianalto said on Thursday.

The Fed’s decision last month to pump an additional $600
billion into the economy through increased Treasury bond
purchases has proven controversial, raising fears among some
economists and politicians about a future spike in inflation.

But Pianalto argued that, while the measure is not a
panacea, it should help the economy along and prevent an
undesirable further decline in inflation, which many Fed
officials already consider to be too low.

“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,”
Pianalto said at an event hosted by Oberlin College.

She said an outright and potentially damaging decline in
prices, known as deflation, was not likely. But she argued that
such a trend would be harder to fight than inflation, making it
crucial for the Fed to create a buffer against that risk.

Pianalto added that the Fed would regularly review incoming
data on the economy and financial markets as it looks to adjust
its level of policy easing, but gave no particular indication
that she saw room for stopping purchases short of the $600
billion commitment.

Wading in on the debate over the nature of unemployment,
she downplayed the notion of that a mismatch between available
jobs and workers’ skills was a primary reason for the country’s
elevated 9.6 percent jobless rate.

“A group of economists at my bank have studied this
question as well, and they conclude that most of the rise in
unemployment our country has experienced is cyclical, not
structural,” she said.

A Labor Department report due out on Friday is expected to
show a second straight month of employment gains. A Reuters
poll shows analysts, on average, expecting a gain of 140,000
jobs, but no change in the unemployment rate.

UPDATE 1-Fed’s Pianalto says easing was needed for recovery