NEW YORK - Monetary policy must evolve based on Federal Open Market Committee projections, Federal Reserve Bank of Cleveland President Sandra Pianalto said Thursday.

“It is important to remember that monetary policy is not something that the FOMC should just ‘set and forget’ – it must evolve with the FOMC’s outlook, including its estimates for structural and cyclical impacts of the recession,” Pianalto told a National Association for Business Economics conference, according to prepared text of her remarks released by the Fed. “Above all, in these uncertain times, I think it is important to keep an open mind and take a balanced approach to meeting our dual mandate.”

Acknowledging the recession’s “huge impact” on the U.S., Pianalto noted the slow recovery makes it unclear “what our productive capacity will be when the recovery is complete.” She added, “My current assessment is that the real economy continues to show considerable cyclical weakness. This assessment, along with my outlook for moderate growth and subdued inflation, calls for today’s highly accommodative monetary policy.”

Although the recession “officially” stopped in June 2009, Pianalto noted, “the nation is producing just a little more total output today than we were at the end of 2007. However, the cutbacks in both labor and capital spending have only partially recovered.”

She continued, “This very slow path to recovery, particularly in terms of labor and investment, is an important element to consider when setting monetary policy. Would more monetary policy accommodation help to speed up the economic recovery? Or should monetary policymakers be more concerned about inflation in today’s environment? Among the many things we need to understand to answer these questions is whether the forces keeping this recovery relatively modest are cyclical or structural.”

The economy should continue growing moderately, Pianalto said, slightly more than 2.5% this year and “around 3 percent in 2013 and 2014. At this pace of growth, I expect that it could take as long as four to five years for the unemployment rate to fall to the 6% rate I judge to be consistent with maximum employment. I also project inflation to run very close to the Federal Reserve’s longer-run objective of 2% as measured by the PCE price index through 2014. My inflation outlook, although it is close to the 2% objective, is based on an economy that is working through a significant amount of cyclical weakness over the projection horizon. My outlook for both economic activity and inflation relies on monetary policy remaining accommodative. Therefore, I have voted in favor of the FOMC’s policy statements and actions, including the statement that economic conditions ‘are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.’ This date is not a commitment; rather, it conveys the FOMC’s collective judgment of when economic conditions would warrant an increase in the federal funds rate. If there is a substantial change in the economic outlook, or risks to the outlook, then the guidance would change appropriately.”

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