By Yali N’Diaye

WASHINGTON (MNI) – Cleveland Federal Reserve Bank President Sandra
Pianalto Thursday said she fully supports the Federal Open Market
Committee’s decision to continue the second round of quantitative easing
program as it was originally scheduled in November.

That said, Pianalto urged the FOMC to adopt an explicit inflation
target, deeming that now is an “opportune time” as rising commodity
prices might result in greater inflation expectation volatility.

In remarks prepared for delivery to the Association for Corporate
Growth in Pittsburgh, Pianalto reiterated her views on growth and
underlying inflation, that they are likely to remain “moderate” despite
challenges.

“It should be clear from my remarks today that I fully support the
FOMC’s most recent decision to continue our asset purchase program as
originally scheduled, and its assessment that economic conditions are
likely to warrant exceptionally low levels of the federal funds rate for
an extended period,” Pianalto said.

However, the monetary policy decision-making body should consider
an explicit inflation target given the potential of increased volatility
of inflation expectations amid rising food and commodity prices.

“With the potential for inflation expectations to be more volatile
in the face of energy and commodity price shocks, I think it could be an
opportune time for the FOMC to be more specific and publicly announce an
explicit numerical inflation objective,” said Pianalto, who is not
currently an FOMC voter.

“Establishing an explicit inflation objective would clearly
communicate our policy intentions and affirm our resolve to achieve
price stability,” she said. “It would also help the public to better
evaluate the effectiveness of our actions as events unfold.”

While acknowledging that rising energy and commodity prices
represent a potential risk for the outlook, for her part, Pianalto said
“the most likely outcome is that despite the recent spike in energy and
commodity prices, we will see a continued moderate rate of underlying
inflation, as I indicated earlier, gradually rising from its current
level of about 1 percent but staying below 2 percent through 2013.”

And economic growth will also continue at a moderate pace, she
expects, noting the pick up in the hiring pace in particular.

Still, recouping the jobs and wealth lost during the recession
“will take some time.”

Besides, the housing remains a weak point, and it might take “well
over a year before the number of bank-owned properties begins to decline
significantly.”

“Despite the challenges we face in both housing and labor markets,
I still expect the economy to continue to expand at a moderate rate, a
bit above the average growth rate of 3 percent per year,” she concluded.

**Market News International Washington Bureau: (202)371-2121**

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