By Jonnelle Marte
(Reuters) - As the U.S. economy continues to emerge from the crisis caused by the coronavirus pandemic, Federal Reserve officials should provide more clarity on how they are assessing their maximum employment and inflation goals, Cleveland Fed President Loretta Mester said on Friday.
A year after the U.S. central bank unveiled a new policy framework under which it will stop responding to strong labor market improvements in anticipation of higher inflation, Mester said it is important for the public to understand what benchmarks officials will use.
"That will help, I think, in at least conveying to the public how we're going to be looking at things," Mester said during a virtual conference organized by the Bank of Finland.
Mester, who becomes a voting member of the Fed's policy-setting committee next year, said the U.S. economy has behaved in unexpected ways because of the pandemic. The labor market has seen a "remarkable" recovery since it was disrupted by the coronavirus pandemic last year, but it may not revert exactly to the levels seen before the crisis, she said.
Following an increase in retirements and other changes, overall labor force participation may not return to pre-pandemic levels, Mester said, adding that the Fed should determine a list of indicators that it will follow "systematically" over time.
Mester noted that inflation could remain high this year before coming back down next year. However, she still thinks there are upside risks to the outlook.
One of the aspects Fed officials need to clarify is what timeframe and what metrics they will use to determine if inflation is averaging 2%, in line with the central bank's target.
Mester also said officials could provide more information in the statements issued after policy meetings in order to explain how changes in economic and financial data had affected their outlook. While that would make the statements longer, it would make it more informative, she said.