Fed's Mishkin says inflation shouldn't be too low

By Mary Childs

LEXINGTON, Virginia (Reuters) - Federal Reserve Board Governor Frederic Mishkin on Thursday said inflation should not be too low and a central bank was better off aiming at a point target for price stability than a vague "comfort zone" range.

Mishkin did not refer to the current outlook for the U.S. economy or discuss the financial strains that have led the Fed to slash interest rates aggressively in recent months.

"Inflation should be low, but not too low," he told the Virginia Association of Economists, at an event at Washington and Lee University in Lexington, Virginia.

"An explicit point objective anchors inflation expectations more effectively than a comfort zone," he said.

U.S. headline consumer inflation rose 4 percent in February versus a year ago due to higher food and energy prices.

But the Fed has been forced to put qualms about price pressures on the back-burner while it fights a financial crisis sparked by the collapse of the U.S. subprime mortgage market.

On top of cutting interest rates by 3 percentage points since mid-September, to 2.25 percent, it has pumped billions of dollars into the financial system to stop it from seizing up.

Mishkin declined to discuss the economy during an audience question and answer session, but did nod to the challenges that policy-makers currently face.