The US economy faces some “pretty obvious” risks of inflation but the Federal Reserve will act with vigour to keep them under control, one of its top policymakers has said.

St Louis Federal Reserve President William Poole said energy costs and renewed company pricing power had pushed up the danger of faster inflation.
“I recognise the risk involved and I think that, should we see evidence that we’re really getting into a more fundamental inflation problem, which is not my best guess, then you’re going to see the Federal Reserve react more vigorously,” he said.
Poole, who is not a voting member of the Fed’s policy committee this year, felt that, at the moment, inflationary pressures had not got the upper hand. “I think that the inflation rate is going to be well contained so long as wages and productivity are where they have been in the recent past,” he said.
The Fed raised its benchmark funds rate by a quarter percentage point to 2.75 percent on March 22 and warned that the risk to prices had grown. Recent economic data has pointed to continued solid growth and Poole said it seemed to be on track — despite a March employment report that showed just 110,000 new jobs created, half what the market had forecast.
But he warned the future direction of prices was the largest uncertainty.
“I think the biggest unknown is whether the inflation pressures, which are pretty obvious, are a temporary thing, perhaps because of pass-through and that sort of thing, or whether we have a bigger inflation risk ahead of us.”
Oil prices have hit record highs recently and companies are finding it easier to pass higher costs on to customers as the US economy enters its fourth year of solid growth.