Dallas Fed President Richard Fisher, an outspoken policy hawk, added that he was perplexed by Wall Street's continued preoccupation with the possibility that the Fed could engage in a third round of large-scale buying of assets, known as quantitative easing, or QE3.

Drawing a line in a debate that has intensified this year, Fisher said he would support QE3 only if there were "a significant reversal of the current momentum of the economy (or) significant deflation," among other scenarios, adding: "I don't see that happening right now."

Fed policymakers are set hold a regular meeting March 13 to decide what more, if anything, to do about the recovery that has shown signs of gaining traction this year, including a drop in the jobless rate to 8.3 percent and improvements in measures of consumer spending and confidence.

At its previous meeting in January the Fed gave a gloomy read on the world's largest economy, saying it expected to keep interest rates "exceptionally low" at least through late 2014 and setting off a debate over the need for more steps to boost slow U.S. growth.

"I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice," Fisher, who does not have a vote on the central bank's policy-setting committee this year, said at Dallas Regional Chamber of Commerce meeting.

"It is my opinion that we should run that risk only in the most dire of circumstances, and I presently do not see those circumstances."

If the labor market continues to improve and inflation remains contained, the Fed would have little reason to take further policy action. Many Fed policymakers are awaiting more data to indicate whether recent jobs growth is sustainable.

"(I)f the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage," Fisher said, using a familiar metaphor.

"On balance, the data indicate improving growth and prospects for job creation in 2012," he said, adding however that the Fed's mandate of stable prices is being "challenged" by higher gasoline prices.

In late 2008, the U.S. central bank slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.

These two rounds of asset purchases were known as QE1 and QE2.

(Reporting by Bruce Nichols; Writing by Jonathan Spicer; Editing by Chizu Nomiyama)

• A Permanent Economic Emergency