Federal Reserve governors said on Monday it was still unclear how much further interest rates need to rise to achieve appropriate levels of balance between growth and inflation.

Federal Reserve Governor Susan Bies said a decision on how much further to raise rates was not a slam-dunk, while Federal Reserve Governor Mark Olson said it was hard to know whether the economy could generate continued job growth without spurring inflation.

What we're saying is that we are in a range today where we are getting closer to feeling that we've got the appropriate level of short-term interest rates relative to what we see happening in terms of inflation and the economy, Bies said in response to questions after addressing a Naples, Florida, bankers' group.

So...it's not a slam-dunk how much further we're going, Bies said. The Fed has raised short-term interest rates 15 times since mid-2004, bringing its federal funds rate to 4.75 percent.

Bies said policy-makers, who meet eight times a year, now are in a position where they must weigh each time how the economy is operating and what the risks are for maintaining stable growth and low inflation.

So we are more judgmental now coming meeting-to-meeting to decide (what) we need to do, Bies said.

Other Fed policy-makers similarly have said the U.S. central bank now was much more data-dependent, after a lengthy period when each meeting methodically resulted in a quarter percentage point rate hike.

Olson, speaking to reporters after a speech to the Fiduciary and Investment Risk Management Association in Washington, said the March U.S. payrolls report showed signs of strength in the economy.

It's an indication of a pretty strong, solid underlying economy, Olson said. But asked whether the economy was out of the sweet spot in which it was able to produce continued job growth without increased inflationary pressures, Olson said, Hard to know. Hard to know.

Government data last week showed U.S. employers added 211,000 jobs in March and that the unemployment rate unexpectedly slipped back to a 4-1/2-year low of 4.7 percent,

Bies said the economy was running at a much stronger growth rate in the first quarter after a soft fourth quarter in which gross domestic product advanced at a 1.7 percent annual rate. The initial look at first-quarter GDP figures will be available on April 28, and they will be revised twice after that.

Run rate, I think is around the mid-threes (an annual rate of growth of three percent) -- what we would have if you took all the noise out, Bies said, referring to the dip in the fourth quarter that was partly due to distortions caused by Hurricane Katrina.

She noted that the news was generally positive on inflation pressures.

We haven't seen a lot of push-through from energy prices into prices of other goods and services yet, Bies said. So inflation has behaved better than many of us feared when we saw the jump in energy prices earlier in the year.

Her comments helped lift U.S. Treasury debt prices following a steep sell-off on Friday that had yanked long-term yields to multi-year highs.

Benchmark 10-year notes climbed 6/32 for a yield of 4.96 percent, down from 4.99 percent on Friday.

In prepared remarks, Bies said banking supervisors were concerned that lenders might be relaxing terms more than was healthy in order for them to make real estate loans. She said there had been some recent slippage in underwriting standards but noted that standards were better than in the late 1980s and early 1990s.

Olson said banks and other financial services firms need to bolster their compliance and risk management activities by turning them into comprehensive, enterprise-wide systems that are continually tested and validated with strong oversight from senior management.

(Additional reporting by Glenn Somerville in Washington and Pedro Nicolaci da Costa in New York))

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