The ultra-easy monetary policy of the US central bank is not unbounded and should not be considered as medicine without costs, a former US Federal Reserve governor said on Wednesday.

"The most pronounced risk of QE (quantitative easing) is not an outbreak of hyperinflation. Rather, long periods of free money and subsidized credit are associated with significant capital misallocation and malinvestment -- which do not augur well for long-term growth or financial stability," said Kevin Warsh in an op-ed on the Wall Street Journal.

Warsh said that as Janet Yellen, President Barack Obama's pick for the next Fed chairman, will be questioned during her confirmation hearing Thursday, the central bank's policy path will come to the spotlight, and the easy monetary policy itself should be assessed both in terms of efficacy and costs.

As a long-time critic of QE, Warsh argued that the more the Fed acts, the more it allows the Obama administration and US Congress to dodge tough choices on fiscal issues, and the highly accommodative policy has favored the well-off households and established firms more than workers and retirees with less risk appetites.

He said that because the United States is the "linchpin" of an integrated global economy, the "Fed-induced liquidity spreads to the rest of the world through trade and banking channels, capital and investment flows, and financial-market arbitrage."

Forward guidance, a policy tool used to explain how the central bank will react to the coming data, is flawed as words are not equal to concrete policy action, he said, adding that that speculations of tapering drove interest rates sharply up over the summer is a case in point.

Yellen, currently vice chair of the Fed, will testify before the Senate Banking Committee on Thursday, as lawmakers weigh her nomination to head the Fed. Analysts say her testimony will likely reinforce the dual mandate of the central bank, which focuses on maximum employment and stable prices. If confirmed by the Senate, Yellen will take the helm after Ben Bernanke's term expires at the end of January 2014.

The leadership transition comes at a pivotal moment of the Fed. After stimulating the economy for five years following the financial crisis, the Fed needs to wind down its asset purchases and gradually normalize its policy with good timing.