–Less Accommodation Could Risk ‘Unwelcome’ Disinflation
–Watching Oil and Rent Cost Spikes

By Denny Gulino

WASHINGTON (MNI) – Cleveland Federal Reserve Bank President Sandra
Pianalto Thursday underlined her satisfaction with current monetary
policy, saying to do more could risk higher inflation and weaken the
recovery, and less could risk “unwelcome” disinflation.

Speaking to the City Club of Cleveland Business Leaders, Pianalto
said Northeast Ohio has been weathering the economic turbulence better
than many parts of the country.

On overall monetary policy she repeated that she is comfortable
with the current stance, and she added some reasons why.

“In my assessment, doing more at this time could create too much
inflation risk and doing less could risk weakening an already slow
expansion and causing an unwelcome disinflation,” she said.

“Of course, I will continue to update my economic outlook as
circumstances warrant, and my position on future policy actions will
evolve accordingly,” she repeated.

Pianalto is a Federal Open Market Committee voter this year.

In her speech Tuesday in Westfield, Ohio, Pianalto had not said
specifically whether she would support further monetary easing to
counter what she called “headwinds” to stronger growth.

In both speeches, she seemed more encouraged about the inflation
outlook than about the pace at which the unemployment rate could sink.

In her prepared remarks Thursday, she said, “Those of you who
follow economic data know that inflation was about 3 percent last year,
but has actually averaged only 1.5 percent over the past three years.”
Her forecast, she repeated, is “is that it will run close
to 2 percent for the next few years.”

The markets, she said, appear to expect the inflation rate to
“remain below 2 percent for quite a while” although “the recent spike in
oil prices and housing rents could complicate the inflation picture if
they persist.”

On the jobs outlook, she repeated that, “Recent labor market
information has been promising. Employment gains have picked up, and new
claims for unemployment insurance have trended down.” Yet even with a
moderate pace of growth, “it could take as long as 4 or 5 years to
achieve maximum employment.”

Overall, she said, “I am comfortable with the current stance of
monetary policy” and that “policy is, in fact, already quite
accommodative.”

“With my current outlook, I think this path of interest rates is
the one best suited to foster steady gains in output and employment and
to maintain stable prices,” she said.

For Northeast Ohio, while noting “recent good performance” she also
noted that “income growth in our region has been persistently lower than
the national average over the past few decades.”

Research shows the two biggest drivers of regional prosperity are
education and innovation, she said.

Ohio, she said, “doesn’t do very well” when ranked as to the
percentage of the population with a college degree, coming in 38th of
the 50 states, though the ranking is considerably better for those aged
25 to 34, 17th out of 50.

“This is not ideal,” she said, “but it is clearly movement in
the right direction.”

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

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