Speaking at a conference in Israel, Federal Reserve board Governor Frederic Mishkin said he currently sees an "upside risk" to inflation expectations and that the Fed wants to contain those expectations.

"U.S. inflation has risen recently, largely because of these sharp increases in global commodity prices. However, thus far, the high costs of energy and other primary commodities have not led to much increase in core inflation, partly because of slackening domestic demand, and there is little evidence that these costs are feeding a wage-price spiral," he said.

"Nevertheless, the latest spike up in energy and food prices has raised the upside risk to inflation and inflation expectations, which we are closely monitoring and seeking to contain."

Mishkin also said Europe is currently facing the headwinds from the current financial turmoil and that the U.S. will continue to face substantial headwinds for some time.

"Financial markets in the United States and Europe have been under considerable strain for almost a year now," he said. "Speaking as a central banker soon to return to the relatively tranquil ivory tower of Columbia University, I don't think it is far off the mark to characterize the turmoil of the past year as one of the worst financial shocks that the United States has confronted since the Great Depression."

However, Mishkin did say the "extreme stress" in markets appears to have abated and that consumer spending has been holding up better than expected.

"Financial markets are showing some tentative signs of revival," he said.

By Stephen Huebl and edited by Cristina Markham