* Mester succeeds Pianalto at Cleveland Fed on Sunday
* Careful not to tip hand on policy stance, economic outlook
(Adds quotes, data, background)
By Jonathan Spicer
CLEVELAND, May 30 The Federal Reserve cannot
achieve full U.S. employment over the longer term without
stabilizing prices, incoming Fed policymaker Loretta Mester said
on Friday, stressing that clear communication will be key as the
central bank returns to a more normal policy stance.
Mester, who succeeds Sandra Pianalto as president of the
Cleveland Fed on Sunday, gave a speech that was careful not to
reveal her stance on monetary policy or the economic outlook.
Instead she challenged Fed researchers to help the central bank
better understand inflation.
"We cannot have full employment over the longer run without
price stability over the longer run," she said at a conference
hosted by the Cleveland Fed, her first real introduction to
Americans and Wall Street.
"The more we understand inflation dynamics, the more we will
understand how inflation will respond to changes in monetary
policy," added Mester, who will immediately have a vote on the
Fed's policy committee. Such findings are relevant as the Fed
"returns to a more normal policy setting framework over time."
Mester is currently head of research at the Philadelphia Fed
whose president, Charles Plosser, is an outspoken critic of the
Fed's accommodative policies. Mester, however, has not staked
out such a hawkish stance.
The central bank has said that, depending on inflation and
the labor market, it expects to start raising interest rates a
considerable time after it ends a stimulative bond-buying
program, which is set to end in the fall.
"I believe effective central bank communication is a crucial
area of further research, especially in today's environment when
monetary policymakers are relying on forward guidance on
interest rates as a primary policy tool," Mester said.
While Mester focused on inflation, listing six questions
that loom over the Fed's understanding of prices, she said she
backed the central bank's dual mandate of price stability and
full employment as complementary goals.
The Fed targets inflation of 2 percent. It is less specific
about what level of unemployment is appropriate, though
policymakers see between 5.2 percent and 5.6 percent in the long
run, according to estimates.
As it stands, inflation is running just above 1 percent and
U.S. unemployment is 6.3 percent.
"While the FOMC can choose the value of inflation it seeks
to achieve over the longer run, it does not have the ability to
achieve just any long-run objective for employment," said
Mester, referring to the Fed's policy-setting Federal Open
"Long-run employment is determined by economic
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)