Fed’s Lockhart Sees ‘Inflation Anxiety’ From Commodities

Federal Reserve Bank of Atlanta President Dennis Lockhart said rising commodity prices are creating “inflation anxiety” even while consumer cost gauges fail to show broader increases.

“There is clearly rising inflation anxiety focused on particular price categories,” Lockhart said today in a speech in Atlanta. “I would expect inflation to continue to firm but not leap out of control” and approach the Fed’s informal goal of around 2 percent, with unemployment declining at a “slow pace,” he said.

Lockhart said it would be “wise” to complete the Fed’s planned $600 billion of asset purchases as scheduled under the program aimed at boosting U.S. growth. Earlier today, Fed Chairman Ben S. Bernanke reiterated to Congress his forecast that growth will accelerate this year, while he wants to see a “sustained period of stronger job creation.”

“We see a sustained recovery at a moderate pace of growth,” meaning annualized gains in gross domestic product of 3 percent to 4 percent this year, Lockhart said to the Southeast Venture Conference.

Oil traded near a 29-month high as Libyan rebels braced for more attacks by leader Muammar Qaddafi’s troops, while Iranian protesters clashed with security forces, Al Arabiya television reported. Lockhart, who spent part of his career in the Middle East, said if unrest spreads to Saudi Arabia, that would be a “wild card” for the economic outlook.

Slow Price Increases

It’s important to have “humility” about events in Middle East as “they are really quite unpredictable,” Lockhart said.

The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.

“Core inflation is still tracking below 2 percent,” Lockhart said. “Long-term inflation expectations remain quite stable.”

Companies in the U.S. added 217,000 workers in February, according to data from ADP Employer Services today. The median estimate in the Bloomberg News survey called for a 180,000 gain last month. The report comes two days before the Labor Department’s February jobs data, which economists said may show payrolls grew by 193,000 workers, the most since May.

The ADP report is “encouraging,” Lockhart said, and he hopes the government release will be “strong.”

‘Subdued’ Wage Growth

“Wage growth continues to be quite subdued, largely because we are looking at high rates of unemployment, around 9 percent,” he said.

The Commerce Department last week reduced its estimate of fourth-quarter growth to a 2.8 percent annual pace. Consumer purchases rose at a 4.1 percent pace, the most since the same three months in 2006, compared with a 4.4 percent rate originally estimated.

While state and municipal budget deficits represent a downside risk for the economy, they’re “not a deal killer” for the outlook, Lockhart said.

Lockhart, 64, a former Georgetown University professor, has led the Atlanta Fed since 2007. Fed presidents rotate voting on monetary policy with Lockhart next voting in 2012.


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