Fed's Fisher adds to warnings on inflation

By Noel Randewich and Jason Lange

The Federal Reserve is now "ahead of the curve" on interest rates and must carefully balance a desire to spur economic growth with the need to keep inflation contained, Fisher said.

"I'm certainly comfortable and confident that where we are now at 3.0 percent is where we should be and we are ahead of the curve," he added.

Another Fed official, Atlanta Fed President Dennis Lockhart, said the Fed's 2.25 percentage point rate cuts to 3 percent since September last year should help stabilize financial markets rattled by a credit crunch and a prolonged housing market slump.

"So, as we move out of the current turmoil, I see the U.S. markets headed toward a 'new normal,' not a return to normal," Lockhart said.

San Francisco Fed President Janet Yellen is scheduled to give a speech in Hawaii at 8:35 p.m. local time (1:35 a.m. EST) on Thursday.

Fisher, who dissented from the Fed's last rate cut on January 30, preferring to hold rates steady at 3.5 percent, acknowledged the economy was slowing "suddenly and precipitously" as financial institutions pull back from or raise the cost of credit.

FISHER-NO INFLATION DROP

"I had yet to see a mitigation in inflation and inflationary expectations from their current high levels," he said. "I simply did not feel it was the proper time to support additional monetary accommodations."

"We can't cut interest rates as aggressively in response to weakness in growth as we otherwise would," Lacker said in Huntington, West Virginia.

"Unfortunately, I expect little progress to be made in reducing core inflation this year or next, and I am skeptical that slower economic growth will help," he said in Birmingham, Alabama.