The Federal Reserve would react to higher oil prices only if the increases spilled over into broader areas, officials of the U.S. central bank said on Friday, with one policy maker calling the risks manageable.

In a similar vein, an official of the European Central Bank said policy makers should be wary of responding too soon to the recent jump in oil prices as it may be fleeting.

Oil prices have risen as political tensions in the Middle East and North Africa have raised fears that the unrest could spread to other major oil-producing countries, stoking fears of even higher fuel prices and inflation risks around the world.

The president of the Richmond Federal Reserve Bank, Jeffrey Lacker, took a calm view of the potential threats to the U.S. economy from the higher oil prices, though he said they could prove nettlesome if they jump much more or create an inflationary psychology.

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 said at a conference organized by the University of Chicago's Booth School of Business.

Janet Yellen, the Fed's vice chair, said U.S. central bank officials would react if inflation expectations or underlying inflation show persistent gains and began to be reflected in other prices.

Any increase that would seem to be sustained in inflation expectations, or in core inflation, that looked like it were getting passed through and it was sustained, would ... demand a response, said Yellen, who is viewed as among the strongest proponents of aggressive measures to support the economic recovery.

Yellen, who also spoke at the conference organized by the Booth School of Business, has a permanent vote on the Fed's interest-rate setting panel and her position is seen as close to the consensus view at the institution.

Lacker said there is a danger that prices that are uppermost in consumers' minds -- such as retail gasoline prices -- could spur fears of wider inflation, which ultimately could push prices up.

A rise in inflation expectations can be self-fulfilling if it leads businesses to raise prices and workers to demand higher wages. However, with the U.S. unemployment rate at 9 percent, many Fed officials do not see much scope for wage increases.

An official from the European Central Bank said policy makers should be wary of responding too soon to the recent jump in oil prices.

It depends very much if it is temporary or not, which means monetary policy does not respond immediately to such a supply shock, nor should it, Vitor Constancio, the ECB's vice president, said in response to questions at the Booth School conference.

Currently, it appears unlikely that oil price rises will pass through to wages, he said, though he cautioned that central banks must be vigilant about inflation and be willing to act if necessary.

We cannot allow inflation to be embedded in the economy, he said.

SUSTAINED RISE DEMANDS RESPONSE

Some Fed policy makers have suggested it might be time to reduce or taper off the central bank's $600 billion bond-buying program in light of a strengthening recovery, but others feel higher oil prices could create headwinds to the recovery.

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.

Yellen said the Fed's long-term commitment to loose financial conditions will shift when the time comes for the central bank to withdraw its support for the U.S. economy.

Once the recovery is well established and the appropriate time for beginning to firm the stance of policy appears to be drawing near, the (Fed) will naturally need to adjust its 'extended period' guidance and develop an alternative communications strategy, she said.

One of the most committed skeptics of the Fed's easing policies, Kansas City Fed President Thomas Hoenig, also played down the risk that oil prices would derail the U.S. recovery.

It's a matter of whether it is a permanent factor. I don't think that it is right now, he said in an interview on CNBC.

However, an official from the Bank of England warned that policy makers should not be complacent if core measures of inflation that strip out volatile energy and food costs are low.

If say, you have an oil price shock ... and that does lead to inflation expectations moving up, pay growth moving up, significant second-round effects being embedded and so forth, what would happen, of course, in the medium term is core inflation would move up to the headline inflation, not the other way around, BoE Deputy Governor Charles Bean said at the same conference.

Policy makers must look carefully beyond core inflation for second-round effects of overall inflation to see if there are any forces driving up wages, he said.

(Editing by Leslie Adler)

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