— Important Not To Remove Fiscal Stimulus Too Soon

By Sheila Mullan

NEW YORK (MNI) – Noting that inflation is below the Federal
Reserve’s target, Cleveland Federal Reserve Bank President Sandra
Pianalto said Thursday she is focused on bringing inflation back to 2%.

In a question and answer session at the Women’s Economic Round
Table in New York, Pianalto also said that while it is important not to
remove fiscal stimulus too soon, Congress needs to start to plan for the
longer-term deficit reduction.

Asked about the tradeoff between the Fed’s policymaking Federal
Open Market Committee’s growth and price stability mandates, Pianalto,
a voting member, said, “my focus is on bringing inflation back to 2%.
That is what I will focus on.”

Earlier in her prepared remarks, Pianalto said, “I also expect
underlying inflation to remain near its current low level through next
year, lower than the roughly 2% rate that I see as consistent, over the
long run, with the Federal Reserve’s objectives.”

Turning to fiscal policy, Pianalto warned against a premature
removal of fiscal stimulus as the economy remains weak. However, she
stressed the need to differentiate the short term from the long term.

“When the country is going through a recession, you need to have
that fiscal stimulus,” she said.

But while it is important not to remove the stimulus too quickly,
it is also important that Congress starts to plan for the future.

A plan to reduce large deficits “will go a long way to deal with”
the situation, said Pianalto.

Turning to monetary policy, Pianalto repeated that should
additional accommodation be needed, the Fed does have options, although
monetary policy is currently already “very accommodative.”

With the fed funds rate “essentially” at 0%, she added, the Fed
must turn to “unconventional policy tools” such as lowering the interest
rates on excess reserves, or “do further buying of long-term assets.”

Earlier in her speech, Pianalto said the Fed needs to weigh the
costs and benefits of further action and make sure it can be effective.

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