Atlanta Fed President Dennis Lockhart, speaking in Tallahassee, Fla., said the Fed should stay "vigilant" for any rise in inflation while completing its $600 billion bond-buying program.

Political upheaval in North Africa and the Middle East has driven oil prices up sharply, with U.S. crude oil futures surpassing $100 a barrel this week. That has sparked fears of a broader rise in prices, particularly given the Fed's unprecedented stimulus to the economy, including $2.3 billion worth of government and mortgage bond purchases due to be completed in June.

"We must remain vigilant in looking for any uptick in broad-based inflation that could unanchor long-term expectations," Atlanta Fed President Dennis Lockhart told the Economic Club of Florida.

So far, he said, inflation remains significantly below the Fed's presumed comfort range of 2.0 percent or less, and the recovery is too sluggish to warrant curtailing the current bond purchases.

Some Fed officials have argued that recent stronger economic data means the Fed should consider cutting short its current $600 billion bond-buying program.

"The best course of action is to play out the program as originally planned," Lockhart told reporters after a speech. "I don't think the situation yet exists that would justify cutting the program off or reducing it," he said.

Minneapolis Fed President Narayana Kocherlakota, speaking in St. Cloud, Minn., at the "Winter Institute" economics conference, also said it was "appropriate" for monetary policy to be highly accommodative. He did not address the possibility of cutting short the current program.

As long as inflation continues to lessen, monetary policy will be an effective tool to fight unemployment, said Kocherlakota. But Fed officials must be vigilant on any changes to that equation.

"By responding to the rate of inflation, responding to changes in the rate of inflation, that's the best way for monetary policy to be helping the economy," he said. Kocherlakota said he would be keeping an eye on core inflation.

But officials' comments today reflect the core view of the policy-setting committee, which next meets on March 15.

Fed Chairman Ben Bernanke Wednesday said that a failure to bring down unemployment could imperil the recovery, suggesting he is not inclined to shift policy any time soon.

European Central Bank President Jean-Claude Trichet signaled he may raise interest rates next month to head off rising inflation. That was far earlier than markets expected, and puts the ECB in the pole position to raise rates well before the U.S. and even the Bank of England.

UNEMPLOYMENT

Economists polled by Reuters expect the U.S. jobless rate to rise to 9.1 percent in February from 9.0 percent, following two months of sharp declines. They also forecast 185,000 new jobs were created, up sharply from January's paltry 36,000. The Labor Department will release its closely watched employment report Friday.

Lockhart flagged the problem of long-term unemployment as one of the greatest challenges facing the U.S. economy.

"The recovery has brought little relief to the labor market," Lockhart said. He said only part of the recent spike in joblessness was caused by structural factors that are beyond the reach of policymakers.

"Monetary policy can contribute, but it shouldn't be expected to eliminate all the factors holding back employment growth," Lockhart said.

Still, he saw some signs of hope in the data.

"The pace of job growth is picking up. Also, the large volume of announced layoffs ... has declined," he said.

Applications for first-time jobless benefits fell in the latest week to their lowest level in 2-1/2 years, adding further evidence of an employment sector that is beginning to heal, albeit very slowly.