Hard to know where US dollar headed-Fed's Pianalto

CLEVELAND, Feb 20 (Reuters) - So many variables affect the value of the U.S. dollar that it is hard to know where the greenback is headed, Cleveland Federal Reserve Bank President Sandra Pianalto said on Saturday.

Taking questions after addressing a group of high school students, Pianalto, a voting member of the Fed's policy panel this year, was asked what policies were being put in place to safeguard the dollar's value.

Pianalto noted that dollar policy was not under the purview of the Federal Reserve, but added: 'The value of the dollar is set by the markets and there are so many variables. It is just very hard to know what direction it is going to go.'

U.S. dollar policy is directed by the Treasury Department.

Asked about the Fed's decision to increase the interest rate it charges banks for emergency loans, Pianalto described it as response to improving market conditions.

'As the credit situation improved and the financial markets improved ... we tried to get it so the banks would access those funds in the market,' she said.

The Fed said on Thursday it was raising the so-called discount rate by a quarter point to 0.75 percent.

It made no move in the federal funds rate governing overnight lending between banks, which can broadly influence credit costs and has been the Fed's main monetary policy tool. That rate still stands in a zero to 0.25 percent range.

Pianalto did not address the outlook for the economy or monetary policy in her remarks, and largely sidestepped questions on fiscal policy, which she said was not the Fed's domain.

'It is important to step back and come out of this recession with recovery and to make sure that the correct fiscal policy is created,' she said.

The Obama administration has forecast a record $1.56 trillion budget deficit this year. At 10.6 percent of GDP, it would be the largest deficit since 1945.

(Reporting by Kim Palmer; Editing by Peter Cooney) Keywords: USA FED/PIANALTO ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.