Fed officials stick to their guns on rates

Federal Reserve officials underscored their reluctance to lower interest rates further, while suggesting record oil prices and the weaker dollar aren't enough of an inflation threat to require higher rates.

Fed Governor Kevin Warsh said new information would need to "materially" alter the Fed's expectations to prompt a shift in its rate stance. Dennis Lockhart, head of the Atlanta Fed bank, said an "orderly" depreciation of the dollar is "manageable." Richmond Fed President Jeffrey Lacker endorsed last week's rate cut while warning that he's concerned about inflation.

The officials spoke before Chairman Ben S. Bernanke delivers his outlook on the economy to lawmakers at a congressional hearing today. Policymakers are aiming to cushion the economy from eroding housing markets, without pushing interest rates to a level that would reignite inflation.

The Federal Open Market Committee said in its Oct. 31 statement risks to growth and inflation were "roughly" balanced after officials lowered the benchmark rate a quarter-point to 4.5 percent, following a half-point cut in September.

Policymakers speaking today recognized that parts of the credit market remain distressed, reiterating that it will take months in some cases for normal functioning to resume.

Last week's FOMC statement "was a signal that the market should not anticipate a rate cut at the next meeting," St. Louis Fed President William Poole told reporters after a speech in Milwaukee. "That's not the same thing as saying no rate cut is possible. It's saying you shouldn't anticipate it, with the information in hand as of right now."

Warsh also said today that prices of crude oil and other commodities and the weaker dollar give cause for concern about inflation.

The Fed governor indicated he's watching to see if price expectations become "less reliably anchored" instead of "contained."

"Should incoming data materially change our forecast, or risks to our forecast, for growth and inflation, so too would our view on the appropriate stance of monetary policy," said Warsh, who joined the Fed board in February 2006.

Lockhart, a former commercial banker who became the Atlanta Fed's president in March, said he supported the Oct. 31 quarter-point cut in the federal funds rate as "insurance against downside risks" given the high level of "uncertainty."

Speaking to reporters afterward about the dollar, Lockhart said: "Yes, I am concerned, but orderly dollar depreciation, I believe, is a manageable development."

"As of Oct. 31, our feeling was policy was roughly where it should be," Lockhart said in Huntsville, Alabama. "It signals nothing about the future. We'll size up the situation as we get closer to the December dates, and look at data as it comes in."