UPDATE 1-Fed's Lockhart says too early to rush for the exits

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By Ros Krasny

MOBILE, Alabama, Sept 30 (Reuters) - The U.S. economy is starting a tentative recovery but it is too early to embark on a full-on exit from the Federal Reserve's accommodative policies, Atlanta Federal Reserve Bank President Dennis Lockhart said on Wednesday.

Lockhart, speaking in Mobile, Alabama, to the University of South Alabama's economic forum, said he wants to see more evidence that the private sector can thrive without government support before kicking away the crutches.

"I do not think that time has yet come, and to be consistent with my outlook, I think it may well be some time before comprehensive exit need be under way," Lockhart said.

The jobless rate is likely to rise from its current 9.7 percent before starting to wane, Lockhart said, noting that many forecasters expect a "jobless recovery" at first.

"We all ardently want to believe the nation is on the economic comeback trail. I don't think we are served by declaring prematurely that we're in the clear."

Lockhart's wait-and-see attitude stood in contrast to that of several other Fed officials, who have stressed the need to get a policy reversal going before all the pieces of recovery are in place.

Some of the urgency for the Fed to scale back on its various unorthodox programs to support credit markets and the economy has been driven by worries about inflation.

But concerns that expansion of the Fed's balance sheet to back unorthodox policies enacted since 2007 would trigger high inflation at some point were "exaggerated," said Lockhart, a voting member of the Federal Open Market Committee in 2009.

When the time comes, the Fed "has the tools to reverse the assumed monetary stimulus," he said.

"Recent inflation measures have been benign, inflation expectations of the public are stable as best we can tell, and my business contacts tell me they and their suppliers have very little pricing power in this environment," he said.

In expressing "measured optimism" about the recovery, Lockhart said that the commercial real estate sector posed some of the biggest risks.

"Lots of commercial construction is still in process, and until growth of supply stops, the industry statistics will continue to deteriorate," he said.

Lockhart said that although interbank lending has returned almost to its pre-crisis norms, "the flow of credit through the U.S. banking system is not yet approaching anyone's notion of normal."