The Federal Open Market Committee (FOMC) meets again this week to review economic conditions and set monetary policy. On whether the Fed should end quantitative easing or extend it, Atlanta Fed chairman Dennis Lockhart recently said that the Fed should remain flexible given the rising energy prices, which could be a sign of coming inflation. Either at this meeting or the next, the Fed could signal that interest rates will rise as a hedge against inflation.

Inflation will also be the focus when the Department of Labor releases the Producer Price Index (PPI) and Consumer Price Index (CPI) this week. Back in January the core PPI (which excludes energy and food costs) had its biggest jump in two years, and the core CPI had its largest uptick in more than year, the second month in a row in which consumer prices jumped.

Atlanta Federal Reserve Bank President Dennis Lockhart put forth his proposal for a new round of quantitative easing, dubbed QE2. He sees the Fed purchasing $100 billion in treasuries per month. Lockhart made his statement in an interview on CNBC and is reported by Reuters.

Lockhart is the third Fed official to come forth in favor of easing. Last week we heard from Charles Evans and William Dudley who both favor QE2.

A key U.S. Federal Reserve official Thursday signaled that the world's most powerful central back may have to raise rates even as the U.S. unemployment rate remains historically high.

While underscoring that he remains "still comfortable with the extended period language" for the Fed's low interest rate policy to help the U.S. economy recover from the financial crisis and recession, Federal Reserve Bank of Atlanta President Dennis Lockhart, in a speech Thursday, said the Fed's target interest rate may have to rise sooner than it typically than it would coming out of a recession.

The U.S. Federal Reserve's accommodative monetary policy remains appropriate, given a "tentative and fragile" U.S. economic recovery, so says Atlanta Federal Bank President Dennis Lockhart.

Lockhart, who spoke Tuesday at the Naples Council On World Affair in Naples, Fla., also said government finances are stressed at all levels, prompting spending cuts and tax increases. Some of that fiscal pain has been averted, Lockhart added, as a result of the federal fiscal stimulus package, "but that infusion of money is temporary."

A key Fed policy maker sees the U.S. economy continuing to recover in 2010, but not at a "gangbuster" rate.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, in a speech Monday before the Downtown Atlanta Rotary Club, said U.S. GDP growth will continue in 2010, but will not be strong enough to lower unemployment substantially.

If Federal Reserve Chairman Ben Bernanke, as economists surveyed by Bloomberg News expect, cuts interest rates at least twice this year, will the good times start to roll? Not quite.

As BusinessWeek points out, life after the rate cut might not be a bowl of cherries. "The nightmare scenario for the Fed is that it cuts interest rates and only manages to get the markets worried about higher inflation without reviving the economy," the magazine says. "That's a recipe for stagflation."

The impact of the rate cuts on the economy won't been apparent for about six months, Edward Jones Investment Strategist Alan Skrainka told USA Today, adding that the Fed's action won't bail out homeowners who are in danger of losing their homes to foreclosure nor will it make banks more willing to lend.

But the risks of a recession are too large to ignore.