–Need Significant Change in Growth,Infl To Reassess Current Policy

By Brai Odion-Esene

CLEVELAND (MNI) – Cleveland Federal Reserve Bank President Sandra
Pianalto Thursday described the Fed’s highly accommodative monetary
stance as “appropriate,” adding that a significant change in the outlook
for growth and inflation would be needed for her to consider a change in
current policy.

Speaking to reporters on the sidelines of the National Association
for Business Economics Industry Conference, Pianalto said as she
prepares for a meeting of the Fed’s policymaking Federal Open Market
Committee “I always keep our dual mandate in mind.”

She reiterated that her current outlook is for the U.S. economy to
continue growing at a modest rate and for inflation to remain stable.

All eyes will be on May’s jobs report set to be released Friday,
but Pianalto — a voter on the FOMC this year — cautioned that “a
one-month, or even a couple-months, job data isn’t changing my outlook.”

“Right now my thinking is that the economy will continue to
expand,” she said. “We are very close to meeting our stable price
objective and if my outlook continues to stay close to where it is, that
will provide a gradual path of employment improvement.”

However, “it’s just going to take us longer to achieve the maximum
employment part of our dual mandate,” she added.

So the Fed’s progress on meeting its dual mandate will dictate if
there is a need for more monetary easing or not, Pianalto said, noting
that the central bank already has a “highly accommodative” policy in
place.

“Given my current outlook … I think our monetary policy stance is
appropriate,” she said, adding “we are providing a highly accommodative
monetary policy currently.”

The Fed’s $400 billion maturity extension program, known as
Operation Twist, ends next month and asked by MNI if she is in favor of
renewing the program based on her assessment economic conditions, she
said, “As I approach each policy meeting I do keep an open mind about
the position that I take at those meetings.”

But, “I do not ever publicly state a position that I’ll take on a
policy action prior to a meeting because I do take into consideration
all the information that’s shared prior to the meeting, and that we
share at the meeting,” Pianalto added.

The June meeting of the FOMC will be one where participants present
their economic forecasts and “if there’s a significant change in the
forecast, our policy guidance will change appropriately,” she said.

“If conditions where to change significantly, both on the economic
outlook side — the growth side — but also the inflation side, I would
have to assess my position on our policy stance,” Pianalto said.

The worsening crisis in the eurozone continues to overshadow
domestic concerns and Pianalto acknowledged Europe is a risk to her
outlook.

“We’ll have to assess how significant that risk is and what impact
that would have” on the baseline outlook, she said.

This has been a period of uncertainty, Pianalto continued,
describing the uncertainties around forecasts by the Fed as “very
large.”

“That’s why I think it’s important to keep an open mind about
policy response and to use good judgement,” she said, cautioning against
relying solely on models or anecdotal evidence.

** MNI Washington Bureau: 202-371-2121 **

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