WASHINGTON — Federal Reserve Bank of Cleveland president Sandra Pianalto on Wednesday said monetary policy will eventually have to become less accommodative, and that the central bank has been developing tools for its exit and will be ready to use them when the time is right.
She said that her outlook is for the economy to continue on a gradual pace toward recovery over the next few years, with an annual growth rate of just above 3%.
Inflation will be temporarily elevated this year due to developments in oil and food prices, according to Pianalto, “but I expect inflation to fall back below 2% in the next couple of years.”
Given this outlook, the current accommodative stance of monetary policy, with short-term interest rates close to zero, is appropriate, Pianalto said, as it supports the Federal Open Market Committee’s dual mandate of stable prices and maximum employment.
Still, she added, “monetary policy will eventually have to become less accommodative.”
