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Federal Reserve Vice Chairman Richard Clarida.

The Federal Reserve's upcoming long-term monetary-policy strategies could include a plan to let inflation periodically run above a 2% target to compensate for past periods of muted price increases, according to a top official at the central bank.  

Federal Reserve Vice Chairman Richard Clarida told a monetary-policy conference in New York on Friday that such a plan to allow "makeup" inflation, as advocated by some economists, could help to "reverse past misses of the inflation objective" -- in other words, that it was below the 2% target for too long a time. 

The Fed is mandated by Congress to minimize unemployment while preventing big spikes in consumer prices, though in the years since the 2008 financial crisis inflation has stubbornly stayed mostly below the 2% target. While outsized inflation is bad for an economy, most officials consider a controlled and modest pace of price increases to be healthy.    

One inherent challenge in managing the inflation rate, according to Clarida, is that the central bank has the leeway to raise rates as high as needed to tamp down price increase, but it's difficult to cut rates below zero, if needed, to push prices higher. 

"Central banks are generally believed to have effective tools for preventing persistent inflation overshoots, but the effective lower bound on interest rates makes persistent undershoots more likely," Clarida said. "Persistent inflation shortfalls carry the risk that longer-term inflation expectations become poorly anchored or become anchored below the stated inflation goal."

Clarida's comments highlighted the delicate path that monetary-policy makers must tread as they seek to maintain economic growth while simultaneously keeping inflation under control. Fast growth at a time of low unemployment can lead to rapid consumer-price increases that quickly erode the benefits of higher output. 

U.S. unemployment is close to a half-century low, with reports that businesses are having difficulties finding qualified workers. Tight labor markets typically force employers to accelerate wage increases, and they often try to pass along those higher costs, leading to rising consumer prices.

But with U.S. growth slowing as the stimulus fades from President Donald Trump's late-2017 tax cuts, the Fed in recent months has paused its years-long effort to raise interest rates - the primary means by which officials try to keep inflation at bay.

A separate Fed official warned at the same conference on Friday of the danger of runaway inflation amid unusually tight labor markets, even as the central bank pauses its years-long effort to prevent prices from surging.  

John Williams, president of the Federal Reserve Bank of New York, said in a speech that policymakers "cannot take for granted that inflation expectations will remain well-anchored."

"We must remain vigilant regarding a sustained takeoff in inflation," Williams said in prepared remarks. "Very tight labor markets could eventually lead to a resurgence of inflation and unmoor expectations, as in the 1960s."

The remarks underscored the risk that Powell and other Fed officials face as they seek to prevent the economy from falling into recession, following one of the longest economic expansions in U.S. history.

Trump's $1.5 billion of tax cuts were unusual in that they came at a time when unemployment already was low. Historically fiscal-stimulus packages have been passed at times when the economy was sluggish and unemployment widespread.   

On average, economists still project growth this year at 2.5%, down from an estimated 2.9% in 2018, according to FactSet.

But a growing number of economists have fretted that overhanging factors such as Trump's trade battle with China, slowing growth in Europe and the recent government shutdown could lead to a global recession, which in turn could spread to the U.S.  

Yet also on Friday -- in the Monetary Policy Report submitted to Congress -- the Fed said that real gross domestic product likely "increased at a solid rate, on balance, in the second half of last year and rose a little under 3 percent for the year as a whole--a noticeable pickup from the pace in recent years."

This story has been updated.