Fed's Lockhart doesn't think price surge will last

By Pedro Nicolaci da Costa

ATLANTA (Reuters) - The economy is on track for a sustained recovery but remains sufficiently weak to warrant the help of loose monetary policy, Atlanta Federal Reserve President Dennis Lockhart said on Monday.

"I remain satisfied that the current stance of monetary policy is appropriately calibrated to the current and projected state of the economy," Lockhart said in remarks that largely resembled a speech he gave in Florida on Friday.

Lockhart's suggestion to reporters following that event that the U.S. central bank's $600 billion bond-buying stimulus should be seen through to its conclusion put him at odds with James Bullard, the St. Louis Fed President who over the weekend indicated a proclivity for perhaps curtailing the program.

Lockhart said he was not worried about the threat of inflation at the moment, in part because growth in wages, a big part of business costs, has remained so tame.

"While short-term measures of inflation have accelerated in the last few months, I hold to the view that this trajectory will not continue," he said.

Inflation fears have ratcheted up recently on a spike in oil and commodities costs, driven in part by political upheaval in countries like Libya and Bahrain. Oil traded in the United States has risen to near $105 a barrel.

However, he said the Fed would watch inflation expectations measures closely for signs that an inflationary psychology is taking hold. For some economists on Wall Street, this was already happening, though some measures of underlying costs remained tame.

The personal consumption expenditures price index outside food and energy, closely watched by Fed officials, rose just 0.9 percent in the year to February, still far below policymakers' presumed target of 2 percent or a bit below.

If inflation perceptions picked up perceptibly, Lockhart said, the Fed would be forced to act.

"I am prepared to support a change in policy if evidence accumulates that the low and stable inflation objective is at risk," he said.