By Michael S. Derby

Federal Reserve Bank of Cleveland President Loretta Mester said the U.S. economy remains in a deep hole brought on by the coronavirus pandemic.

In comments after a speech about the central bank's research on digital money options, Ms. Mester said Wednesday that parts of the economy have recovered more quickly than others, while other sectors remain depressed.

"It's not a sustainable recovery, it's still fragile," and the country has lost years of economic output dealing with the coronavirus crisis, she said.

Ms. Mester said the recovery effort would need continued support from Fed policy makers and broader government actions. Ms. Mester is a voting member of the rate-setting Federal Open Market Committee, which last week said short-term rates will remain near zero for years to come.

Ms. Mester also said that different parts of the Fed are researching how the central bank could offer its own full electronic currency, and that these efforts have come under greater focus due to the pandemic and its big impact on how consumers and businesses pay for goods and services during the crisis.

"The demand for and use of such instruments need further consideration in order to evaluate whether such a central bank digital currency would allow for quicker and more ubiquitous payments in times of emergency and more generally," Ms. Mester said. "A range of potential risks and policy issues surrounding central bank digital currency need to be better understood, and the costs and benefits evaluated."

Interest in official central-bank digital currencies has been growing in recent years in light of the rise of private alternatives. The Fed has acknowledged exploring what a fully digital dollar might mean, but officials have also noted Americans still have a strong demand for cash, and that there could be privacy implications with the Fed offering fully electronic money.

At the same time, some have been advocating for the Fed to offer bank accounts directly to households. Proponents say it could make monetary policy more efficient by allowing the Fed to bypass banks and make changes in its policy stance directly at the retail level. They have also argued that these accounts would make it easier for the central bank to deliver stimulus directly to households, citing the trouble of disbursing government support payments earlier this year, at the height of the pandemic.

Ms. Mester didn't suggest any big changes are on tap for the Fed on these fronts yet.

Experimentation at regional Fed banks "is an important ingredient in assessing the benefits and costs of a central bank digital currency, but doesn't signal any decision by the Federal Reserve to adopt such a currency," Ms. Mester said. "Issues raised by central bank digital currency related to financial stability, market structure, security, privacy, and monetary policy all need to be better understood."

Write to Michael S. Derby at michael.derby@wsj.com