Fed still worried about inflation despite oil retreat

By Pedro Nicolaci da Costa

CHARLOTTE, North Carolina (Reuters) - Inflation remains a big concern despite some relief from the recent rapid fall in energy prices, top Federal Reserve officials said on Tuesday.

Jeffrey Lacker, of the Richmond Fed, said runaway inflation remains a the greater risk even if the U.S. economy slips into recession, which he argued is still a possibility.

"We can't sustain inflation at this pace," Lacker told reporters following at the Richmond Fed's Charlotte branch. "Moderation in growth by itself isn't likely to bring down inflation dramatically."

His counterpart from the Minneapolis Fed, Gary Stern, sounded a bit more sanguine. He told CNBC television that lower oil prices should help keep inflation under control and the U.S. central bank should be "patient" in its approach to monetary policy.

Richard Fisher, the Dallas Fed president viewed as the central bank's most ardent inflation hawk, seemed to think differently. He told the Dallas Morning News in an interview that the Fed would act quickly to ward off any possibility that an expectation of rising prices sets in.

The comments highlighted the tricky situation facing policy-makers, who are simultaneously confronted with rising costs and a slowing economy. U.S. consumer prices jumped 5.0 percent in the year to June, while economic growth turned negative in the fourth quarter of last year before recovering in the first half of 2008.

Officials' sense of relief over the recent pullback in oil prices, which have fallen from records near $147 a barrel to $113 a barrel in just a month, was palpable.

"It should help to alleviate some of the inflation concerns and inflation pressures that we had been confronting, assuming this sticks," Stern told CNBC.