NEW YORK – Oil price hikes should be temporary, but if they were to push up longer-term inflation expectations, it would be an “unwelcome development,” Federal Reserve Bank of Atlanta President and Chief Executive Officer Dennis P. Lockhart said today.
While the economy appeared to be gaining momentum in 2011, and Lockhart said, he was prepared to say he “could be pleasantly surprised to the upside” this year, his statement was tempered by the Middle East unrest.
“At this juncture it’s unclear whether the unrest and political instability will spread and intensify, driving global oil prices even higher, he told the Economics Club of Florida, according to prepared text of his comments, which were released by the Fed. “The range of plausible scenarios is widening. A sober assessment of prospects for continued economic progress has to factor in not only the risk of a sustained oil shock but also risks associated with fiscal policies and politics both here and in Europe.”
But, he said, his read is that supply disruptions and growth in developing countries are pushing short-term inflation expectations higher, but “an upward drift in longer-term inflation expectations would be an unwelcome development.” So, he added, the “must remain vigilant in looking for any uptick in broad-based inflation that could unanchor longer-term expectations.”
