Two top Federal Reserve officials offered conflicting views on interest rates on Thursday, one arguing they should stay low for a long time and another saying a rate hike could be in the cards this year.

Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk, said inflation risks have risen in the last six months, potentially warranting some form of monetary tightening before the end of the year.

Rate hikes by year end are certainly a possible outcome given what we see with momentum in economic growth and given how inflation risks seem to have evolved, Lacker, an inflation hawk, told reporters after a speech.

In contrast, Cleveland Fed Bank President Sandra Pianalto, speaking in Rome, said the Fed should keep its federal funds target rate very low for a long while to come, and complete its $600 billion bond purchase program as scheduled

Pianalto said she saw no evidence that sharp rises in food and energy prices would lead to lasting inflation, though the Fed is watching for any signs of an unanticipated spillover.

My outlook for economic growth and inflation assumes that we complete our asset purchase program as originally scheduled, and keep our federal funds rate target at exceptionally low levels for an extended period, Pianalto said.

The Fed's bond purchases are scheduled to end in June.

I don't expect recent rises in food and energy prices to cause a broad spillover into a wide array of consumer prices, or in other words a lasting increase in inflation, said Pianalto. She said underlying inflation would rise only gradually toward 2 percent by 2013.

Lacker was not as sanguine. He said the Fed should consider selling some of its mortgage bond holdings potentially early in its exit strategy.

The housing finance market can easily withstand a substantial liquidation of our MBS holdings, Lacker said. I don't think we should fear tanking the housing market

In response to the crisis and the ensuing recession, the Fed has bought well over $2 trillion in mortgage and government bonds. Lacker favors a return to holding only Treasuries, since he worries that the housing bond buys blurred the line between monetary and fiscal policy.

The U.S. economy expanded 3.1 percent in the fourth quarter, a solid clip but not enough for a country still digging its way out of a deep hole. U.S. unemployment has come down rather rapidly in recent months, but remains at an elevated 8.8 percent.

(Additional reporting by Gavin Jones in Rome; Editing by Neil Stempleman)

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