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Having dissented, Fed's Rosengren gets comfortable with QE cuts

Boston Fed President Eric Rosengren speaks during the Sasin Bangkok Forum July 9, 2012. REUTERS/Sukree Sukplang

By Jonathan Spicer

HARTFORD, Connecticut (Reuters) - The lone Federal Reserve official to dissent against the U.S. central bank's decision to cut stimulus said on Tuesday he is nonetheless comfortable with the current approach of reducing bond-buying by $10-billion increments at each policy meeting.

In an interview, Boston Fed President Eric Rosengren warned against any "dramatic steps" to wind down the asset purchases and gave what might be the most detailed outline to date of what economic conditions might cause the U.S. central bank to veer from a uniform withdrawal of accommodation.

The comments from the dovish central banker may reinforce public expectations that the so-called quantitative easing program, or QE, is on track to be wound down and shelved by year end with few surprises along the way.

"I'm comfortable with the current approach that it looks like we're going to be following through on," Rosengren told Reuters after giving a speech to an economic forum here.

Last month, the Fed reduced to $75 billion from $85 billion the amount of assets it buys each month in an aggressive effort to spur investment and hiring in the protracted wake of the Great Recession.

Fed Chairman Ben Bernanke has said QE would likely be wound down throughout this year as the U.S. economy improves.

Rosengren, who repeated on Tuesday he would have preferred to delay the policy change, appeared to be getting in line with what Bernanke called a "measured" removal of what amounts to the biggest monetary policy experiment ever.

"Roughly a $10 billion at each FOMC, if we were to gradually reduce purchases, I think that would be appropriate," Rosengren said of the policy-setting Federal Open Market Committee meetings. "I wouldn't want to take any dramatic steps at this stage because I don't think the economy warrants it."

The FOMC next meets January 28-29, the last meeting before Fed Vice Chair Janet Yellen succeeds Bernanke as chair. Rosengren loses his vote on policy this year under a rotating system.

The Fed cited a stronger job market in its December 19 decision to reduce bond purchases, a move that surprised many investors.

Unemployment hit a five-year low of 7 percent in November. Recent growth in jobs, consumer spending, manufacturing and housing, as well as a fresh budget deal in Congress, has meanwhile brightened U.S. prospects going into 2014.

While the Fed has tied further withdrawal of stimulus to continued economic progress, Rosengren detailed what he would need to see to either halt the tapering or ramp it up.

"To halt it, certainly if we stop seeing progress in the labor markets ... and we were to start seeing the unemployment rate go up - that would be certainly a source of concern and a reason to stop it," he said.

On the other hand, "it would take some fairly strong, unexpected growth, and inflation much more quickly than I'm expecting back towards 2 percent, to make me want to remove accommodation more quickly," Rosengren said. "I don't expect that to happen," he added.

Inflation has been near 1 percent, below the Fed's 2 percent goal.

Besides the purchases of Treasuries and mortgage bonds, the Fed has kept interest rates near zero since late 2008 and has said it will likely keep them there "well past the time" unemployment falls below 6.5 percent.

Asked about this telegraphing of policy intentions, Rosengren said he would have been comfortable lowering the 6.5-percent threshold. But he acknowledged the communication challenges that would bring.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)