October 19, 2018 / 5:39 PM / a month ago

UPDATE 1-Fed monitoring Khashoggi case, potential oil market impact -Bostic

(Adds details on Khashoggi case, Fed monetary policy)

By Howard Schneider

MACON, Ga., Oct 19 (Reuters) - U.S. Federal Reserve officials are monitoring the case of missing Saudi journalist Jamal Khashoggi and the possibility that any sanctions against Saudi Arabia could disrupt oil markets, Atlanta Fed President Raphael Bostic said on Friday.

Asked about the risks to the U.S. economic outlook at a community group lunch in Macon, Georgia, Bostic mentioned geopolitical risks generally, the Brexit talks and “the Saudi Arabian situation and the question about whether what happened to that journalist is going to lead to sanctions that could impact oil markets.”

His comments, the first by a U.S. central banker about the case, reflect how it has escalated from a diplomatic dispute between Saudi Arabia and Turkey to an international incident with the potential to roil financial markets.

Khashoggi went missing after entering the Saudi consulate in Istanbul on Oct. 2 to obtain documents for a forthcoming marriage. Turkish officials believe he was killed in the building, but Riyadh has denied the allegations.

Bostic singled out the possible fallout if the United States or other countries determine that top Saudi officials were behind Khashoggi’s possible murder and begin imposing penalties on Riyadh.

“We don’t know what is going to happen,” Bostic said, “but one thing we will do is monitor the economy and these developments as closely as possible.”

Oil prices rose about 1 percent on Friday on signs of surging demand in China, although the market was headed for a second week of losses on rising U.S. inventories and concern that trade wars were curbing economic activity.

Bostic said he saw little risk to a U.S. economy that is “chugging along” with very low unemployment and inflation at the Fed’s 2 percent target.

“To what extent can we keep that going? All the conversations I have suggest the answer is that there are no significant dark clouds on the horizon,” he said.

Bostic did not comment on his current monetary policy views, though he recently said he was open to a further interest rate increase in December depending on how the economy evolves.

The Fed has raised rates three times this year and is widely expected to lift borrowing costs again at its December policy meeting. (Reporting by Howard Schneider Editing by Paul Simao)

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