The U.S. economy is in the throes of a cyclical recovery and there are encouraging signs of improvement in financial markets, a senior Federal Reserve official said on Friday.

Federal Reserve Governor Kevin Warsh told a Levy Economics Institute conference the U.S. central bank is exploring the exit from its extraordinarily accommodative


We are in the exit stage, Warsh said, pointing to the end of liquidity facilities the Fed put in place during the financial crisis. The Fed also ended its $1.25 trillion mortgage-backed securities purchase program at the end of March.

Fiscal authorities would do themselves a good service in also beginning a robust discussion of the exit, he said.

The Fed cut benchmark interest rates to near zero in December 2008 and more than doubled its balance sheet through purchases of longer-term assets.

Warsh said it would be good if central banks returned to a narrower, more circumscribed role, but added this would not be easy to do.

I don't think we should fool ourselves in thinking we can simply turn the page, he said.

Warsh said the financial architecture remains in flux, with Wall Street looking to Washington for signs on how the system will look in the future and vice versa, making it challenging for policy-makers to read financial market signals, he said.

Warsh said that there are some reasonable calls for more transparency at the Fed -- the U.S. central bank -- due to the extraordinary steps the Fed took at the height of the crisis.

But Warsh warned that increased transparency should not curb the Fed's independence in its conduct of monetary policy. On regulation, however, Warsh said the Fed should not be given special deference.

There are reasonable calls to make sure that the transactions that we're doing with counterparties are fair; have good controls associated with them, so if an audit means that, then I'm all for it, Warsh said.