Fed's Lockhart says circumstances not ripe for QE3 (Reuters) - The U.S. economy needs "measured" efforts to bolster growth, but the central bank should focus on improving its communications because circumstances do not warrant further bond buying at this time, a top Federal Reserve official said on Monday. Atlanta Federal Reserve Bank President Dennis Lockhart said the central bank's policy panel should push forward with efforts to give the public and financial markets a better understanding of how it would react to incoming information on the economy. "Circumstances today in the United States call for continued measured efforts to quicken the pace of recovery and shrink unemployment, while keeping inflation controlled," Lockhart said in a speech prepared for delivery to the Institute of Regulation and Risk, North Asia, in Tokyo. The Federal Reserve, specifically, should continue to clarify strategy so the public can discern how the committee arrives at decisions, he said. "Working toward this end is the right undertaking ... at this moment," Lockhart said. I think use of the tool of refined communication is an appropriate incremental policy action. However, Lockhart, a voting member of the policy panel this year, said the central bank should not take the option of a third round of so-called "quantitative easing" off the table, saying he foresees only modest growth over coming years and that the economy still faced risks, notably from Europe. The Fed cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in government and mortgage-related debt to push other borrowing costs lower and spur a stronger recovery. U.S. economic growth, however, has been tepid and the unemployment rate remains at a high 8.1 percent. The central bank's policy-setting Federal Open Market Committee has also employed communications to keep borrowing costs low. In January, in an effort to push long-term rates lower, it said it expected to keep overnight rates "exceptionally" low through at least late 2014; previously, it had signaled they would likely rise next year. Minutes of the FOMC's April 24-25 meeting released last week showed the Fed is considering refining its quarterly economic and interest rate projections to give a clearer view of how it might react to changing economic circumstances. Some officials have said more frequent monetary policy reports are an option. At a news conference following the last FOMC meeting, Fed Chairman Ben Bernanke said U.S. monetary policy was "more or less in the right place" but he kept open the possibility of a further round of bond purchases, or QE3. In his speech, Lockhart did the same. "I do not think this option can be taken off the table," he said. QE3 will work under the right circumstances. But I don't believe such circumstances prevail at his time. Lockhart projected "only modest" economic growth over the next few years, with inflation remaining steady at around 2 percent. He said risks to the U.S. outlook were "tilted modestly to the downside." He noted "larger than normal risks," and highlighted the potential for a "broad spillover" from Europe to the U.S. and global economy "resulting from financial system disruption as well as further economic slowdown." Europe is already teetering on the edge of a recession, and many analysts are worried that political and economic upheaval in Greece could lead to a deepening of the region's debt crisis. Reporting by John Crawley and Tim Ahmann in Washington; Editing by Eric Beech