By Brai Odion-Esene

WASHINGTON (MNI) – The U.S. economy is showing signs it is
undergoing a sustained recovery, but the level of progress is not enough
to warrant withdrawing the Federal Reserve’s monetary support, Atlanta
Federal Reserve Bank President Dennis Lockhart said Monday.

In remarks prepared for delivery to students at Miami Dade College,
Miami, Florida, Lockhart noted that the pace of economic growth is
picking up on a national level. And while the pace is “moderate,” it
seems to have momentum, he said, and “should prove sustainable as the
year progresses.”

But while the progress being witnessed is real, Lockhart cautioned
that it is “fitful, and support of accommodative Fed policy is still
required, in my view.”

“I believe it is a bit early to declare victory,” he argued, “and,
to be sure, employment is nowhere near acceptable levels.”

Still, confidence appears to be growing, Lockhart noted. While
caution remains with regards to investment and hiring decisions, the
Atlanta Fed chief said he has heard more optimism from his business
contacts across a range of industries “than I heard even a few weeks
ago.”

On the inflation front, he pointed out that deflation concerns have
abated and the rate of inflation seems to have stabilized. While there
is concern about higher gasoline and commodity prices, Lockhart said
higher input costs have not translated to broad inflation of consumer
goods and services.

“Through 2011 and 2012, I expect gradual firming of underlying
inflation pressures from current very low levels to healthier levels,”
he said.

Lockhart also took time to discuss those factors that could pose
downside risks to his outlook. Not surprisingly, these include sovereign
debt woes in Europe and a potential spillover into the U.S. economy
“through a number of channels,” as well as the weakness of the U.S.
housing sector — which could reemerge as a “major” drag on consumer
spending. Lockhart also cited the fiscal struggles of U.S. states and
municipalities.

“Many will have to continue to reduce expenditures to avoid default
on their debt obligations or downgrades of their debt ratings,” he said.

Stressing the need to avoid overstating the likely speed of
improvement in the economy, Lockhart concluded that the appropriate
outlook at this point “is one of cautious optimism.”

** Market News International Washington Bureau: 202-371-2121 **

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