Fed's Pianalto says more easing could be warranted

"If the expansion were to continue to lose momentum, and inflation threatened to run persistently below 2 percent, additional policy action could be warranted," Cleveland Fed President Sandra Pianalto told an Economic Research Institute of Erie Conference.

However Pianalto, who has a vote this year on the U.S. central bank's policy-setting Federal Open Market Committee, warned that the benefits of the Fed's quantitative easing programs have their limits.

"The FOMC's large-scale asset purchase programs have been an important economic stabilizer and are supporting the expansion," she said. "But these programs may entail costs, and that is why the FOMC constantly reviews the costs and benefits of our policy actions."

Pianalto, seen in the dovish core of Fed policymakers alongside Chairman Ben Bernanke, also damped down her gross domestic product growth expectations, suggesting four straight months of disappointing U.S. jobs growth as well as persistent economic headwinds from Europe and China led the policymaker to shift her stance somewhat since May.

Despite a modest uptick in the housing market, recent U.S. economic data from manufacturing to retail sales show the world's largest economy has tripped in the last few months.

Based on today's "highly accommodative" monetary policy, Pianalto said she now expects 2012 growth of around 2 percent, down from a previous forecast of "slightly above 2.5 percent." The pace of growth should pick up gradually through 2014, but the unemployment rate should remain above 7 percent by the end of that year, she said.

The U.S. jobless rate was 8.2 percent in June.

Earlier on Tuesday, Bernanke told the U.S. Senate Banking Committee that the Fed was moving closer to unleashing a fresh round of monetary stimulus, repeating the central bank's pledge to act if needed.

(Reporting by Kim Palmer; Writing by Jonathan Spicer; Editing by Chizu Nomiyama and James Dalgleish)