UPDATE 1-Fed’s Lockhart doesn’t think price surge will last

(Adds comments, details)

By Pedro Nicolaci da Costa

ATLANTA, March 28 (Reuters) – The U.S. 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 also indicated that, despite recent improvements
in the economic data, he sees little reason to cut short the
U.S. central bank’s $600 billion bond-buying stimulus. He
pointed to a weak housing market, noting home values had yet to
stabilize.

“My working assumption continues to be that (the program)
will be completed as it was originally designed on the same
time frame,” Lockhart told reporters after a speech.

That view put him at odds with St. Louis Fed President
James Bullard, who said over the weekend policymakers should
consider 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 closely monitor measures of
consumer price expectations for signs that an inflationary
psychology is taking hold.

For some economists on Wall Street, this was already
happening, though some gauges 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.

The U.S. economy expanded at a 3.1 percent annualized clip
in the fourth quarter. The jobless rate, for its part, has come
down rapidly in recent months, falling to 8.9 percent in
February from as high as 9.8 percent late last year. However,
Lockhart said not all of the drop is encouraging, since part of
it could be traced to discouraged workers dropping out of the
labor force.

UPDATE 1-Fed’s Lockhart doesn’t think price surge will last