* Inflation currently under control -Williams
* Weak job market keeping inflation at bay -Rosengren
* Fisher warns Fed must not be complacent
* Don't expect tightening right away -Lockhart
(Adds context, Lockhart comment on tightening)
By Pedro Nicolaci da Costa
LAS CRUCES, N.M., May 4 U.S. inflation remains
well under control, despite the spike in oil prices, but the
Federal Reserve stands ready to raise interest rates if price
pressures appear to be getting out of hand, top Fed officials
said on Wednesday.
John Williams, in his first speech as president of the San
Francisco Fed, argued that the recent spike in commodity costs
will likely be transitory.
"The economy today faces many pitfalls, but I don't believe
that runaway inflation is one of them," Williams said, adding
that he would not prejudge a possible need for additional bond
purchases in the future.
In response to evidence of economic weakness last summer,
the U.S. central bank in November announced it would buy some
$600 billion in Treasury bonds in an effort to keep long-term
borrowing costs low and support the recovery.
In some of the first public speeches by Fed officials since
a policy meeting April 26-27 at which the central bank said it
would complete those purchases on schedule by the end of June,
policy makers who spoke on Wednesday explained why they are in
no rush to pull back ultra-loose monetary policy soon.
Eric Rosengren, the dovish president of the Boston Fed, who
is a voter this year on the policy-setting Federal Open Market
Committee, struck much the same note as Williams, saying a
return to 1970s-style inflation was not likely.
He said tame wage growth and high unemployment are helping
cushion some of the inflationary impact of higher food and
energy costs, by keeping consumer inflation expectations under
A rise in inflation expectations can be self-fulfilling if
it leads workers to demand higher wages.
But with high unemployment, workers have little power to
demand higher wages because they can easily be replaced.
JOB MARKET HEALING SLOWLY
Another U.S. central bank official, Atlanta Fed President
Dennis Lockhart, saw steady but modest job growth of about
200,000 jobs per month through the rest of this year after a
"It may take three years before the size of the nation's
work force reaches prerecessionary levels," he said in a speech
The U.S. Labor Department will report figures for April
nonfarm payrolls on Friday. Economists expect that 186,000 jobs
were added in April, according to a Reuters poll.
Rosengren said increases in overall U.S. inflation due to
supply shocks since the mid-1980s have generally been
temporary, a pattern that should play out again.
"We should expect the impact on inflation to be transitory
-- and that total inflation will converge back to core
inflation, which remains well below 2 percent," he said.
The U.S. consumer price index jumped 2.7 percent in the
year to March. But so-called core CPI, which excludes more
volatile food and energy costs and is a gauge of underlying
price trends, climbed just 1.2 percent. The Fed's informal
target is 2 percent.
Not all Fed officials are equally sanguine about inflation.
Richard Fisher, the Dallas Fed's hawkish president and also an
FOMC voter this year, cited worries about rising prices.
"The headline (inflation) numbers have gotten a little
stout," he told reporters after a speech. "We have to carefully
monitor" how inflation expectations evolve.
Still, he stopped well short of calling for near-term
interest rate hikes.
And Lockhart, of the Atlanta Fed, said no tightening of
monetary policy is imminent.
"It's a bit premature now to anticipate it's going to
happen right away," he said.
The sequence and pace of steps that the Fed takes when it
is time to reverse its easy money policy will depend on
economic conditions at the time, Lockhart added.
READY TO FIGHT INFLATION
If inflation does begin to act up, officials said the Fed
has both the tools and the will to attack price threats by
bringing up interest rates quickly.
"I am committed to responding decisively, and as forcefully
as necessary," the Boston Fed's Rosengren said, "to ensure that
long-term inflation expectations remain stable and that food
and energy prices are not passing through to other prices."
In response to the worst recession in generations, the Fed
slashed official borrowing costs to effectively zero and
implemented an array of unorthodox lending facilities to heal
frozen credit markets. Many of those measures have been
shuttered as market conditions improved, but the controversial
buying of assets to keep down long-term rates has continued.
"Should it prove necessary to counter inflationary
pressures, I will be among the first to advocate the unwinding
of some of the stimulus we have provided," Fisher said.
Fisher cited a rebound in manufacturing and capital goods
orders as not only a positive short-term indicator of economic
momentum but also potentially a sign that the U.S. economy was
finally moving away from an overreliance on consumer spending.
"They are harbingers of needed rebalancing," he said.
(Additional reporting by Ros Krasny in Boston, Ann Saphir in
Los Angeles, and Joe Rauch in Atlanta; additional writing by
Mark Felsenthal; Editing by Leslie Adler)