Fed officials say bond-buying must remain in its toolbox

PALO ALTO, Calif. (Reuters) - The Federal Reserve should be prepared to undertake a fresh bond-buying program if the economy again faces shock or recession, three Fed officials said on Friday at the Hoover Institution at Stanford University.

Boston Federal Reserve Bank President Eric Rosengren went the farthest in defending what was a controversial tool in the U.S. central bank's fight against the Great Recession, saying it is "inevitable" that the Fed will again need to engage in quantitative easing.

St. Louis Fed President James Bullard, speaking on the same panel, said he believes the Fed's balance sheet should eventually shrink by more than half to $2 trillion, but that the Fed should be able to add new bonds to the balance sheet if needed in the future.

Chicago Federal Reserve Bank President Charles Evans also said the Fed must retain the ability to buy bonds if needed, but that the main goal now should be to strengthen the economy as much as possible to avoid the need for bond buying in the future.

(Reporting by Ann Saphir and Howard Schneider; Editing by James Dalgleish)

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