By Ros Krasny

CHICAGO (Reuters) - The Federal Reserve's current low interest rates are not inflationary given continuing problems in credit markets, a top strategist at the bond firm PIMCO said on Wednesday.

"The current 2 percent fed funds rate is not providing any tinder whatsoever for an inflationary fire," Paul McCulley, PIMCO's managing director, said in a newsletter.

"Terms and conditions for private sector credit creation, the fuel for private-sector aggregate demand growth, are tighter, much tighter than when the fed funds rate was 5.25 percent a year ago," he said.

Back from the Kansas City Fed's annual economic forum in Jackson Hole, Wyoming, McCulley said hawkish commentary on inflation from some central bankers ignores the current problems with passing low official interest rates to the broader economy -- the transmission of monetary policy.

And with more slack developing in the economy, especially in the sagging labor market, "if anything, a 2-percent fed funds rate is restrictive, not stimulative," he said.

Traditional creators of credit continue to "delever," or shed risk, a process that is "fueling asset price deflation in a vicious downward cycle," McCulley added.

The fed funds rate is more situational than absolute, and is highly dependent on whether financial firms are ramping up or slashing their leverage, he said.

"Thus, a high funds rate may not be restrictive at all, while a low funds rate might not be stimulative at all."