Fed's Barr sees rates holding steady 'for some time' given above-target inflation

By Howard Schneider

WASHINGTON, March 24 (Reuters) - The U.S. Federal Reserve may need to keep interest rates steady "for some time" before further cuts are warranted, Fed Governor Michael Barr said on Tuesday, noting continued inflation above the Fed's 2% target and the risks posed by the ongoing conflict in the Middle East.

The job market "appears to be stabilizing," Barr said in remarks prepared for delivery to a community development conference.

By contrast "we continue to contend with inflation notably above ... the 2% goal," Barr said, with the central bank's preferred Personal Consumption Expenditures price index about a percentage point above that level. Barr said that while he was "hopeful" inflation falls this year, that could be at risk with higher oil prices now flowing through to gasoline and other consumer costs.

"I would like to see evidence that goods and services price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable," he said.

The Fed held the policy rate steady in the 3.5% to 3.75% range at its meeting last week, with policymakers indicating they still expect to reduce rates at least once more this year.

That outlook, however, has been called into doubt given the high price of oil, with investors now expecting the Fed to stay on hold and an increasing possibility seen of the central bank raising rates before year's end. (Reporting by Howard Schneider in Washington; Editing by Dan Burns and Matthew Lewis)