* Fed's stimulus kept U.S. from deflation, has not sparked inflation
* Fed will be able to keep prices steady when ready to exit
By Braden Reddall
SAN FRANCISCO, July 2 (Reuters) - The U.S. Federal Reserve is ready to ratchet back its super-easy monetary policy when the time comes so as to head off any uncontrolled price rises, a top Fed official said on Monday.
"Just as in any recovery, we are going to take away the punch bowl once the party really gets going, to slow the economy down and dampen inflationary pressures and keep inflation low," San Francisco Federal Reserve Bank President John Williams told the Western Economic Association International.
The Fed has kept short-term interest rates near zero since December 2008 and has signaled it will keep them there until at least late 2014.
It has also bought $2.3 trillion in long-term securities to lower borrowing costs still further, initiating a new program of purchases each time the economy has lost steam.
Signs the recovery is again slowing, including data showing U.S manufacturing shrank in June for the first time in nearly three years, have renewed expectations for a new round of Fed bond-purchases.
Critics, including some fellow Fed policymakers, say that such actions could stoke future inflation.
Williams, a voter on the Fed's policy-setting panel this year and an avid advocate of monetary policy easing, took aim at that view.
While he did not say whether he would support still more Fed action, he argued that the Fed's unprecedented stimulus importantly kept the United States from falling into a growth-sapping deflationary spiral, and at the same time has not pushed inflation too high.
Banks, households and business are hoarding cash rather than lending, borrowing or spending it, Williams said on Monday, keeping inflationary pressures from building up.
Inflation has hovered near the Fed's 2 percent target for the last four years, and is projected to stay there for the next decade, he said.
"Right now I think inflation risks are quite low," Williams said, citing downside risks in the United States and abroad.
But if the economy begins to hum strongly again, he said, the U.S. central bank has the tools to keep inflationary pressures in hand.
That's because the Fed now pays interest on the excess reserves that banks have at the central bank, and by raising that rate, can trap money that might otherwise be lent out too rapidly, Williams said.
The Fed could also reduce its holdings of long-term securities to remove accommodation, he said.
"Orchestrating this perfect landing is always a challenge, and never goes exactly according to plan," he said. "We at the Fed are committed, and we are prepared, to meet that challenge."
Williams' talk came just after a critique of easy Fed policy from his former advisor, Stanford University professor John Taylor and the author of a widely used rule of thumb for monetary policy.
Taylor argued that the central bank has overestimated the slack in the economy, prompting it to push borrowing costs lower than it should. He also warned policymakers against taking an ad hoc approach to monetary policy, calling it a wolf in sheep's clothing and drawing a smile from Williams.
Fed Vice Chair Janet Yellen, who was Williams' boss at the San Francisco Fed before her move two years ago to Washington, has argued that policy easing be used as insurance against downside economic risks.