UPDATE 1-Ex-Fed chief Volcker: Fed facing policy limits

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LONDON, July 14 (Reuters) - There are limits to what the Federal Reserve can do to further ease U.S. monetary policy, former Fed chair Paul Volcker said on Thursday, noting that further measures could even have negative effects.

"They're conducting a very accommodative easy money policy now," he said in an interview with Reuters Insider TV. "There are limits as to how much more they can do within things that are feasible for a central bank."

The Fed has kept interest rates near zero since December 2008 and has bought $2.3 trillion in bonds to boost growth in the U.S. economy.

Fed Chairman Ben Bernanke told Congress during semi-annual monetary policy testimony Wednesday and Thursday that if tepid recovery shows signs of flagging, the central bank is prepared to respond with more policy easing.

Bernanke said the Fed could bolster promises to hold interest rates at exceptionally low levels or to keep the Fed's balance sheet at its vastly expanded size for a prolonged period, among other measures. Further bond buying is another option, he said.

But Volcker added his voice to those who question the effectiveness of further efforts by the Fed and worry about possible negative side effects.

"With interest rates so low, practically to the vanishing point, there is always a question of whether you end up inadvertently stimulating speculative activity that you'd just as soon not stimulate," he said.

Volcker's reputation as a former Fed chairman is high because he was willing to plunge the U.S. economy into a painful recession to break the back of high inflation. (Reporting by Angeline Ong; writing by Mark Felsenthal; Editing by Leslie Adler)