Fed easy-money stance appropriate for now: Pianalto

CLEVELAND (Reuters) - The Federal Reserve's easy-money policy stance remains appropriate because the real economy continues to show much cyclical weakness, which can ultimately be reversed, a top Federal Reserve official said on Thursday.

Cleveland Fed President Sandra Pianalto, who has a vote this year on monetary policy, said "structural" changes to the labor market - which could keep the jobless rate permanently higher - are likely less pronounced than "cyclical" changes that can be repaired in part by policy decisions.

"It is challenging to assess how much of the weakness in labor markets and tightness in capacity utilization is structural and, therefore, not reversible with broad-based economic growth," Pianalto said at a National Association for Business Economics.

"Nonetheless, my current assessment is that the real economy continues to show considerable cyclical weakness," she said. "This assessment, along with my outlook for moderate growth and subdued inflation, calls for today's highly accommodative monetary policy."

Pianalto is near the center of the spectrum of Fed policymakers, some of whom are urging more policy action now while others worry the central bank has already gone too far, risking inflation down the road.

The Fed in late 2008 slashed benchmark interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.

Yet the recovery, especially in jobs, has been slow and economic growth has been erratic, leading the Fed to say it expects to keep rates "exceptionally low" at least through late 2014. The Fed repeated that conditional pledge in April, a month in which the jobless rate was 8.1 percent.

"If there is a substantial change in the economic outlook, or risks to the outlook, then the (2014) guidance would change appropriately," Pianalto said.

She repeated her expectations for moderate growth "slightly above 2.5 percent" this year and "around 3 percent" in the next two years, and for inflation to run "very close" to 2 percent, which is the Fed's stated target, through 2014.

(Editing by James Dalgleish)