Fed officials play down oil price risks

Yahoo ^ | 2/25/11 | Mark Felsenthal and Kristina Cook - Reuters

[NormsRevenge]

NEW YORK (Reuters) – The Federal Reserve would react to higher oil prices only if the increases spilled over into broader areas, officials of the U.S. central bank said on Friday, with one policy maker calling the risks "manageable."

In a similar vein, an official of the European Central Bank said policy makers should be wary of responding too soon to the recent jump in oil prices as it may be fleeting.

Oil prices have risen as political tensions in the Middle East and North Africa have raised fears that the unrest could spread to other major oil-producing countries, stoking fears of even higher fuel prices and inflation risks around the world.

The president of the Richmond Federal Reserve Bank, Jeffrey Lacker, took a calm view of the potential threats to the U.S. economy from the higher oil prices, though he said they could prove nettlesome if they jump much more or create an inflationary psychology.

"I think the oil price rises we've seen so far don't pose a risk to the recovery," he told reporters after a speech on regulation.

"Oil price changes could have the potential, if they were very large, for slowing the recovery, but we have a lot of experience and a lot of data on past instances, and I think it's a manageable risk," he said at a conference organized by the University of Chicago's Booth School of Business.

Janet Yellen, the Fed's vice chair, said U.S. central bank officials would react if inflation expectations or underlying inflation show persistent gains and began to be reflected in other prices.

[FourPeas]

I’m sure the Fed can find a way to look more like mental midgets, but I’m not sure what it would be.

[unixfox]

The FED need not worry. Instead of their worthless paper money, the Saudis and others will demand gold for their oil.

Can we blame them?