UPDATE 1-Fed's Dudley: Waiting to fix fiscal problems risky

(Adds comments, details)

WASHINGTON, March 11 (Reuters) - Governments must not put off addressing large debt burdens, because doing so could result in even greater fiscal problems down the road, a top U.S. Federal Reserve official said on Thursday.

William Dudley, president of the New York Federal Reserve Bank, said the U.S. economy is on “firmer ground” in an address to the Council of Society Business Economists in London, but otherwise said little about the economy. He made no comments about the likely direction of monetary policy.

Dudley focused on what he called three longer-term challenges to the world economy: government finances, regulatory reform, and global imbalances.

He said getting the timing right on shoring up public finances would be difficult.

Clamping down on government spending too soon could “jeopardize the recovery and push a convalescent economy into a double-dip recession,” he said.

But waiting too long exposes countries to the vagaries of market sentiment and could lead to higher interest rates and debt service costs.

“Put simply, to wait-and-see ultimately is likely to necessitate an even bigger fiscal adjustment,” he said.

The issue, Dudley said, is not fiscal stimulus, which he noted had been necessary in the United States to stabilize the economy, even though it drove up the deficit. That spending is temporary, he added. The bigger long-term problem for the United States and other advanced economies is structural deficits -- those likely to persist absent changes in tax and spending policies.

While it may be difficult politically to push needed tax increases or spending cuts, waiting until financial markets force the matter is even tougher.

“Once confidence begins to erode, it can do so very quickly,” Dudley said, adding that “moving ahead earlier with a credible plan is preferable to waiting.”

On regulatory reform, he said standards needed to be harmonized globally but the consensus to do so appeared “fragile.” He also cautioned against focusing too much regulatory attention on the traditional banking sector rather than looking across the entire financial sector.

Echoing other Fed officials, including Chairman Ben Bernanke, he said it would be a mistake to strip the Fed of its bank supervision role, although he acknowledged the central bank made mistakes in the run-up to the financial crisis.

On global imbalances, he said the gap between the debt-heavy United States and countries carrying big surpluses had narrowed during the recession, but could grow again and ultimately become a destabilizing force.

While he did not name any specific surplus country, China holds the biggest trade gap with the United States, and has amassed more than $2 trillion in reserves.

“A number of countries have surely reached a point at which further reserve accumulation comes with more costs than benefits,” Dudley said, again referring to surplus countries in general and not naming China.

Unless those imbalances are addressed -- which means the United States saves more and surplus countries take steps to boost domestic consumption -- they could spawn a rise in protectionism, which he called a “lose-lose proposition.” (Reporting by Emily Kaiser; Editing by Leslie Adler)