The U.S. Federal Reserve must remain alert to lurking inflation risks, and could begin removing monetary stimulus by selling some of the mortgage debt it acquired during the financial crisis, a top central bank official said on Wednesday.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, downplayed concerns expressed by many investors that sales of housing-linked assets could disrupt a fragile housing market by pushing borrowing rates sharply higher.

To my mind, a natural place to start is asset sales, he told reporters after a speech to the Charlotte Chamber of Commerce. We have to move over time away from channeling resources to the housing market.

The comments echo those of James Bullard, of the St. Louis Fed, who has also advocated bond sales as a first-rung exit tool for policy-makers.

Other Fed officials have suggested they would rather raise the interest rate the central bank pays on bank reserves, or rely on draining reserves directly from the system through short-term transactions known as repurchase agreements.

The central bank not only slashed interest rates to near zero in response to the worst financial crisis in generations, it also instituted a number of emergency measures, including a commitment to purchase over $1.4 trillion in agency and mortgage-backed bonds. Traditionally, the Fed's balance sheet had been composed predominantly of Treasury debt.

Some analysts believe the shift in composition makes an eventual pullout much more difficult, since any sale would risk derailing a housing market that was at the core of the crisis, and remains vulnerable.

Lacker opposed the purchases when they were first announced because he deemed they constituted an industrial policy that favor one industry over another.

It doesn't seem advisable to me to build a recovery based on housing, he said.

LOOKING TO THE EXITS

With a few caveats, Lacker, viewed as one of the Fed's most aggressive inflation hawks, offered a relatively upbeat assessment of the economy in his prepared remarks.

He said a worldwide pick-up in economic activity was boosting demand for U.S. exports. Meanwhile, Lacker said housing and autos are no longer a drag on growth, although employment and commercial real estate continue to present serious hurdles.

These contrasts will make it difficult for the Fed to correctly time an eventual pullout from its unprecedented emergency measures, including record low interest rates and over $1 trillion of credit pumped into the financial system.

I will be looking for the time at which economic growth is strong enough and well-established enough, even if it is not yet especially vigorous, he said. We cannot be paralyzed by patches of lingering weakness.

His comments come as global central banks face conflicting forces that are pulling them in different directions. Australia raised official interest rates for a third time this week, while Japan announced measures aimed at further easing lending conditions. The European Central Bank, for its part, is expected to outline a sketch of its own exit strategy at a meeting on Thursday.

Because the U.S. economy, at the epicenter of the global credit crisis, is expected to rebound more slowly than others, many analysts believe the Fed will be one of last to unwind its liquidity efforts.

The U.S. Labor Department will release the latest employment figures on Friday. They are forecast to show another 140,000 jobs were lost in November, while the unemployment rate remained perched at a 26-year high of 10.2 percent.

A report from ADP Employer Services on Wednesday showed 169,000 private-sector jobs were wiped out last month, more than economists had projected.

Despite this softness, Lacker appeared confident that the risk of an inflation spike was greater than the threat of a persistent decline in consumer prices.

We have seen that even in the early stage of a recovery, inflation and inflation expectations can drift higher, he said. The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred.

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)

Inflation