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In wake of QE taper, Fed's Plosser dusts off inflation warning

Philadelphia Federal Reserve President Charles Plosser speaks at an Economics21 event in New York, March 25, 2011. REUTERS/Brendan McDermid

PHILADELPHIA (Reuters) - The Federal Reserve faces "immense" challenges now that it has reduced bond-buying, and needs to be cognizant of a rapid rise in future inflation, a top U.S. central banker said on Friday.

Philadelphia Fed President Charles Plosser, a voter on monetary policy this year, said the central bank's balance sheet is still growing at "a fairly rapid clip" despite the $10-billion (6 billion pounds) reduction in monthly asset purchases, which started this month.

Dusting off arguments he and other hawkish officials made before the recent bout of low inflation, Plosser said he was less concerned about disinflation and more concerned about too-high inflation if banks start to quickly release the $2.4 trillion in excess reserves they now hold.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)