Federal Reserve officials offered clashing views on Monday of whether soft U.S. growth or inflation pose a greater risk to the economy but the face-off looked unlikely to alter the Fed's ultra-loose stance for now.

To Atlanta Fed President Dennis Lockhart, higher gas prices dampened consumer spirits and contributed to disappointing growth in the first quarter. High energy prices are likely to weigh on consumers and business for a while, he said.

It appears that the first quarter will come in soft relative to what we expected -- what many people expected -- at the beginning of the year, Lockhart, a non-voter this year, said at a business event.

Taking a different tack, Dallas Fed President Richard Fisher repeated concerns that inflation risks are becoming more pressing.

American businesses are doing their utmost to offset with higher prices the surging costs of their inputs, Dallas Fed President Richard Fisher told a Rotary Club lunch.

This will result in some unpleasant general price inflation numbers in the next few reporting periods, he added.


High unemployment and idle factory capacity suggest the recovery could yet pick up its pace without causing overheating, said Fisher, a voter on the Fed's policy-setting panel. However, Fed bond buying that won't be finished for two more months, according to plan, could contribute to inflationary pressures, he said.

The Fed slashed short-term interest rates to near zero in December 2008 and then bought $1.4 trillion in longer-term securities to pull the economy out of recession. It re-launched asset purchases last November with a $600 billion program through June as the recovery flagged.

Fed leadership has given no sign it is ready to cut short its policy easing or move to the exits any time soon. The views of Lockhart, seen as in the middle of the range of views of policymakers, seem most likely to represent the consensus that will emerge from policy-setting meetings next week.

Both Fed Chairman Ben Bernanke and vice chair Janet Yellen have said recently they believe rises in energy and commodity prices will be transitory. Yellen said April 11 that high unemployment and the absence of inflationary psychology, and levels of inflation that are not far above historical lows all justify continued aggressive Fed economic support.

Still, the outspoken concerns of Fisher and others are a sign there will be a lively debate about when and how the Fed, which maintains an easy money stance even as major central banks around the world responded to inflation with rate hikes, should launch its own tightening cycle.


Another Fed official worried the U.S. central bank could be late in responding to rising inflation is St. Louis Fed President James Bullard. The Fed should not exclude food and energy from the inflation numbers it targets, and those figures have been rising recently, Bullard said on Monday in Louisville, Kentucky.

Supporters of the Fed's easy money policy argue that the central bank should not change policy every time notoriously volatile food and energy prices spike. They say so-called core inflation, which excludes food and energy, are a better gauge of where inflation is headed.

Bullard has taken a hawkish tone recently, and has urged the Fed to cut short its bond buying by $100 billion, although he did not repeat that call on Monday.

He did say he is beginning to worry about recent inflation readings, bolstered by rising energy costs.

U.S. consumer prices rose 2.7 percent in the year to March, but the core measures, which exclude food and energy prices, climbed just 1.2 percent.

Bullard argued the underlying fundamentals for U.S. economic growth are strong despite signs that first quarter economic growth, now seen possibly coming in below 2 percent, looked much weaker than had been expected a few months ago.

U.S. gross domestic product rose 3.1 percent in the fourth quarter. Unemployment, meanwhile, remains at an elevated 8.8 percent, though it has come down rapidly in recent months.

(Additional reporting by Pedro Nicolaci da Costa in Louisville, Kentucky and Mark Felsenthal in Washington; Writing by Mark Felsenthal; Editing by Chizu Nomiyama)