Lockhart says central bank should continue its support of the economy

Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank should continue its support as the economic recovery remains fragile. 

"There is still a halting and fragile quality to the economy and the process of restoration of full economic strength with higher employment continues to require support," he said during a speech Friday in Knoxville, Tenn. 

He expects that longer-term inflation expectations will remain stable, and says the current monetary policy is appropriate.

Inflation will probably “level off around a rate consistent with the Fed’s price stability mandate,” he said.

Although the economy may have lost some momentum at the start of the year, Lockhart "expects a sustained moderate pace of expansion and gradually declining unemployment." 

The labor market added 216,000 workers in March, dropping unemployment down to 8.8 percent, figures from the Labor Department showed on April 1.

Lockhart focused on the manufacturing sector's lead role in the recovery as employment has fallen and productivity has increased. 

The future of the sector will rely on manufacturing's ability "to change and reinvent itself in response to global competitive pressures."

The Institute for Supply Management’s manufacturing index reported recently that the sector continues to expand although at a slightly slower pace last month — to 61.2 in March from 61.4 in February, when the reading hit its highest level since May 2004.

Policymakers including Federal Reserve Chairman Ben Bernanke say they're keeping a close eye on inflation and plan to continue with the central bank's $600 billion in purchases of government debt that is expected to run through June and provide a boost to economic growth. 

Meanwhile, some policymakers are urging the central bank to gradually begin increasing interest rates.

As Bernanke said earlier this week, Lockhart echoed said inflation from commodities prices “transitory” and “muted.”

“Roughly two-thirds of consumer spending is on services, which are not materials-intensive,” Lockhart said. “To the extent that some goods and services have these commodity inputs, the pass-through to ultimate consumer prices is limited” by competitive pressures and higher productivity.

Fed officials will provide an update of their economic forecasts April 26 and 27.