WASHINGTON — The latest round of quantitative easing focused on mortgage-backed securities purchases should help lower mortgage rates, and therefore support the housing sector in a still struggling U.S. economy, Cleveland Federal Reserve Bank President Sandra Pianalto said Thursday.

While monetary policy actions can pose potential risks, Pianalto does not see inflation as a problem, projecting it to remain in the range of 2% "for years to come."

"It is possible that these purchases will yield somewhat smaller interest rate declines and may not stimulate economic activity as much as past large-scale asset purchase programs," Pianalto said in prepared remarks to the Miami University Farmer School of Business.

"Nevertheless, by purchasing additional mortgage-backed securities, this program should put some downward pressure on home mortgage rates," she said.

Noting the economic recovery has been "frustratingly slow," she added that such "lower rates should provide further support for the housing sector by encouraging home purchases and refinancing."

"In this way, monetary policy might help to stabilize housing prices, reduce mortgage payments, and generally bolster consumer confidence," she continued.

"Rising confidence, in turn, should support more spending for goods and services, and, over time, lead to more employment," she concluded.

The Federal Open Market Committee announced last week that in addition to its maturity extension program, it will buy $40 billion in mortgage-backed securities a month until it sees a significant improvement in the labor market. It also pushed out its forward guidance -- how long it expects interest rates to remain close to zero -- to mid-2015 from late-2014.

That being said, Pianalto stressed the relation between job creation and monetary policy is not "straightforward," stressing that the Fed policy cannot directly create jobs, just the conditions to help create jobs.

In particular, a "more robust" economic recovery requires to address the U.S. fiscal challenges as well as the situation in Europe, both beyond the Fed's control.

Besides, monetary policy actions are not without posing risks, with some citing the potential for inflation to become a problem.

That is not Pianalto's view, as she expects inflation to remain around 2% in the coming years.

That being said, "our policy process is designed to keep a sharp focus on inflation and inflation expectations, and we will act to head off any emerging threat to price stability," she said.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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