Fed's Lockhart says Mideast unrest a risk to U.S.

Political unrest in the Middle East and North Africa adds a dose of uncertainty to an already-fragile U.S. economic recovery, Atlanta Federal Reserve President Dennis Lockhart said on Wednesday.

The U.S. economy is improving steadily but unemployment remains frustratingly high and a number of risks remain, suggesting the central bank should complete its $600 billion bond-buying stimulus as planned, Lockhart said.

It will be wise to play it out through its conclusion mid-year as planned with no reduction, Lockhart told a meeting of business executives.

A recent spike in gasoline prices raises the possibility that inflation expectations will move higher, but that has not yet taken place, Lockhart said.

Wages continue to be quite subdued, wage growth is quite subdued, he said in response to questions. You get inflation broadly speaking when you add to the mix the chasing of wages to underlying price movements. That does not exist today.

Lockhart said he expects inflation to orbit around 2 percent -- the Fed's implicit target -- over the next six months to a year.

As for the broader U.S. economy, which grew at a 2.8 percent annualized rate in the fourth quarter, Lockhart believes it will expand between 3 percent and 4 percent in 2011. Still, he said a sustained rise in oil prices could dent that outlook.

Lockhart put great emphasis on the still-anemic job market. He said he would like to see several months of sustained, solid employment growth before deeming the recovery to be truly established, echoing language used recently by Fed Chairman Ben Bernanke.

U.S. unemployment has fallen sharply in the last two months, but remains very high at 9.0 percent. Analysts expect a Friday report from the Labor Department to show the jobless rate ticked up to 9.1 percent in February, though they have a median forecast a gain of 185,000 new jobs, up from a paltry 36,000 in January. Such a gain, however, would still hardly be sufficient to keep up with growth in the labor force.

(Reporting by Matthew Bigg; Writing by Pedro Nicolaci da Costa; Editing by Leslie Adler)