Uprisings in the Middle East and North Africa have increased U.S. economic uncertainty, and Federal Reserve policy-makers should not rule out further bond purchases if things worsen, a top central bank official said on Monday.
My first inclination is to be very cautious about extending asset purchases after June, Atlanta Federal Reserve Bank President Dennis Lockhart told a conference sponsored by the National Association for Business Economics.
Given the emergence of new risks, however, I prefer a posture of flexibility as regards policy options, he said.
This includes a need for policy-makers to remain vigilant against the prospect that recent spikes in commodity and energy prices, which are making businesses and consumers nervous, do not give rise to an inflationary psychology, Lockhart said.
A soft labor market and meek wage growth makes such a development unlikely, he said. Indeed, a recent pick-up in core inflation was viewed as welcome news for policy-makers, who just a few months ago had been worried about the potential for deflation.