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Plosser says Fed could tighten policy this year

WASHINGTON (Reuters) - Philadelphia Federal Reserve Bank President Charles Plosser on Friday said the U.S. central bank could move to tighten monetary policy this year if the recovery unfolds as he expects.

"It's going to depend on how the economy plays out. There are a lot of concerns about the weakness ... in the first quarter: will that continue on or not?," Plosser told CNBC. "My forecast is that it won't continue, that the economy will turn to this modest recovery that we've been having in the second and third quarters and the rest of the year."

"If that forecast turns out to be the right forecast, then it's certainly not inconceivable to me that we will have to begin to take our foot off the accelerator before the end of the year."

Continued weakness could dash that possibility, he said, but a third round of asset purchases would only take place if something "very dramatic" happened to the economy.

The Fed lowered benchmark U.S. interest rates to near zero in December 2008 and then turned to buy more than $1 trillion in government and mortgage-related debt. In November, it launched a fresh $600 billion round of bond-buying, which is due to wrap up in June.

Plosser said he believed the Fed could sell assets at the same pace at which it bought them without disrupting financial markets. "We did not disrupt the functioning of the markets very much," he said. "As a starting point it seems to me an obvious place to start and say, 'OK, well here's the pace we bought them, let's try to sell them at about the same pace'."

(Reporting by Tim Ahmann; Editing by James Dalgleish)

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