SARASOTA, Fla. - Atlanta Federal Reserve Bank President Dennis Lockhart Tuesday night said while adopting a "vigilant restraint" approach to monetary policy, he does not rule out "further" quantitative easing.

During a question and answer session with reporters following a speech at a New College of Florida's event co-presented by the Global Interdependence Center, Lockhart added that in his view, inflation is in a "healthy zone."

He said that with inflation close to the 2% target, he felt "comfortable," adding that inflation expectations continue to be "stable."

Earlier in his speech, the central banker said he does not see the current "accommodative policy compromising the objective of 2% inflation."

Asked to comment about the policy on interest on excess reserves, Lockhart said he wouldn't expect a change to significantly impact the economy.

However, he declined to "speculate" on where the policy concerning interests on reserve is heading.

In other comments, Lockhart said that he is more concerned about the impact of the European crisis through financial channels than through exports.

He does, however, expect Europe to contain its issues, and when it does -- and the economy recovers -- it will benefit global growth.

Among other concerns, he cited a sustained hike in oil prices.

Commenting on the good results of U.S. Treasury auctions, Lockhart said the U.S. trade deficits are "financeable," with auctions getting good submissions.

Turning to the economy, he repeated that he saw positive developments such as improving manufacturing, while housing remains an "important piece" for getting the U.S. economy back on a robust path.

For that to happen, he said, the inventory of homes will have to be addressed, which he expects to take time.

Asked about asset prices, Lockhart said monetary policy is not the right tool to target asset bubbles, adding this is not the intent of the policy.

As to the U.S. dollar, Lockhart said that is the responsibility of the U.S. Treasury.

In his prepared remarks, Lockhart affirmed his support for the Federal Reserve's current monetary policy stance, and said he is prepared to be "somewhat patient" and see how the economic situation evolves.

Lockhart added that he does not see the current "accommodative policy compromising the objective of 2% inflation."

In fact, he said, "I think the current policy stance is appropriate for an outlook of steady, moderate growth with gradual employment gains."

Recent economic indicators have been "positive on balance," with the most obvious signs of improvement coming from the labor market, Lockhart said. In addition, "we're starting to see the beginnings of credit expansion."

Lockhart, who will be voting on the Fed's policymaking Federal Open Market Committee this year, pointed out better household income growth as well as positive signs from the business sector.

Still, he has not revised up his growth forecasts, reaffirming his expectation of a 2.5% to 3% GDP growth this year.

So overall, Lockhart is "pretty confident" that the recent economic data are a sign the "economy is gaining traction" and that growth this year will be "noticeably" stronger than in 2011.

This view, he said, might seem at odds with the January 24 Federal Open Market Committee statement stressing that economic conditions warrant exceptionally low interest rates "through late 2014." But it is not, he said.

While recent data are encouraging, "we haven't seen enough sustained improvement to be sure it will last."

There are still adjustments that will occur, he said, while many forecasters expect house values "to remain flat or even decline in the next several years."

More broadly, Lockhart said the expected return to full capacity will be "slow and arduous."

So overall, he supported the January FOMC statement said "continue to support that statement."

He cautioned, however, that the 2014 forward guidance is "a conditional statement."

"It is not a commitment to maintain a near-zero federal funds rate without consideration of how conditions on the ground are evolving," he said.

What it means, instead, is that "the Fed's policy rate will likely stay at rock bottom at least through 2014 if the economic story goes as projected. If it doesn't, the time horizon could change."

As for the 2% inflation target, it is "an aid to understanding how the FOMC will react to developments in the economy within an overarching approach that can be called 'flexible inflation targeting," he said.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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