Fed's Lockhart urges vigilance against inflation

Reuters

By Pedro Nicolaci da Costa

TALLAHASSEE, Florida (Reuters) - A spike in commodity costs is making consumers expect higher prices in the short-run, and Federal Reserve officials must make sure longer-run expectations remain under control, a top central bank official said on Thursday.

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At the same time, U.S. unemployment remains far too high, and the economic recovery still needs plenty of help from the Fed's accommodative monetary policy, Atlanta Fed President Dennis Lockhart told the Economic Club of Florida.

Political upheaval in North Africa and the Middle East has driven oil prices up sharply, with U.S. crude futures surpassing $100 a barrel this week. That has sparked fears of inflation, particularly given the Fed's unprecedented stimulus to the economy -- including $2.3 billion worth of government and mortgage bond purchases due to be completed in June.

The most recent data, however, suggests underlying inflation remains well under control, and significantly below the Fed's presumed comfort range of 2 percent or a bit lower.

"We must remain vigilant in looking for any uptick in broad-based inflation that could unanchor long-term expectations," Lockhart said.

Lockhart flagged the problem of long-term unemployment as one of the greatest challenges facing the country.

"The recovery has brought little relief to the labor market," Lockhart said. He said only part of the recent spike in joblessness was due to structural factors that are beyond the reach of policymakers.

"Monetary policy can contribute, but it shouldn't be expected to eliminate all the factors holding back employment growth," Lockhart said.

Still, he saw some signs of hope in the data.

"The pace of job growth is picking up. Also, the large volume of announced layoffs ... has declined," he said.

Applications for first-time jobless benefits fell in the latest week to their lowest level in 2-1/2 years, adding further evidence of an employment sector that is beginning to heal, albeit very slowly.

Economists polled by Reuters expect the jobless rate to rise to 9.1 percent in February from 9.0 percent, following two months of sharp declines. They also believe 185,000 new jobs were created, up sharply from January's paltry 36,000. The Labor Department will release its closely watched employment report on Friday.

(Reporting by Pedro Nicolaci da Costa; Editing by Andrea Ricci)