Oil price gains to date don't pose a risk to the economic recovery but they could be nettlesome if they jump a lot higher, Richmond Federal Reserve Bank President Jeffrey Lacker said Friday.
"I think the oil price rises we've seen so far don't pose a risk to the recovery," he told reporters after a speech on regulation.
"Oil price changes could have the potential, if they were very large, for slowing the recovery, but we have a lot of experience and a lot of data on past instances, and I think it's a manageable risk," he added.
Lacker said that pass-through from higher food and energy prices into broader inflation is limited but that there is a danger that prices that consumers are keenly aware of — such as what they pay for gasoline — could impact inflation.
"There's a risk that the high visibility of gasoline and food price increases would pose a little more risk for inflation dynamics this time than in the past," he said.
Oil prices retreated from 2-1/2-year peaks of almost $120 a barrel hit in London on Thursday to hover below $112 on Friday on Saudi efforts to plug supply gaps. However, turmoil in the Middle East and Northern Africa has added to worries about higher fuel prices and inflation risks around the world.
Speaking at a monetary policy conference, Lacker also said stress tests for banks come at a cost but are valuable for preventing financial panics.
"Quantifying the risks at large financial institutions is a complex and costly process that is vulnerable to manipulation," he said at the event sponsored by the University of Chicago's Booth School of Business.
"A disciplined and well organized supervisory process for validating those assessments strikes me as well worth the costs," he added.
However, Lacker said one of the outcomes of stress tests conducted in 2009 was to expand the level of bank liabilities under implicit government guarantee.
Lacker was defending the stress tests against a paper presented at the conference that argued the 2009-2010 stress tests in the United States and Europe have not brought about sufficient improvements in financial conditions.
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