Williams: Now is not time for Fed to pull back

CLAREMONT, Calif. Feb 13 (Reuters) - The Federal Reserve must do all it can to reduce "very high" unemployment and bring inflation back up to more desirable levels, a top Fed official said on Monday.

"It's vital that we keep the monetary policy throttle wide open," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery at Claremont McKenna College, near Los Angeles. "This will help lower unemployment and raise inflation back toward levels consistent with our mandates. And we want to do so quickly to minimize total economic damage."

Williams, a voting member this year on the Fed's policy-setting panel, has supported recent moves by the U.S. central bank to bolster the economy, including last month's decision signalling that it will keep interest rates near zero through late 2014, a year and a half longer than it had previously projected.

Williams' comments on the economy were limited, and he did not refer to the recent string of better-than-expected economic data in a talk geared toward teaching students how central bankers think about monetary policy. He called the recovery "lackluster," held back by "by weak demand and a still very high unemployment rate."

But the San Francisco Fed chief, known as a monetary policy "dove" who is more concerned with the threat of high joblessness than high inflation, stopped short of calling for further policy easing.

"The Fed is committed to achieving maximum employment and price stability," he said. "And we're doing everything in our power to move towards those goals."

The Fed has kept interest rates near zero for more than three years, and it has pushed down borrowing costs further by buying $2.3 trillion in long-term securities.

The unemployment rate in January fell to a three-year low of 8.3 percent, but it is still much higher than the 6 percent to 7 percent rate that most economists believe could be sustained without putting upward pressure on prices and inflation.

Inflation by the Fed's preferred gauge fell to 0.7 percent last quarter, well below the 2 percent target the central bank set last month.