The Federal Reserve must be prepared to take action and curb inflation if slowing growth doesn't moderate prices as expected, said the most hawkish member of the FOMC on Tuesday.

Dallas Fed President Richard Fisher (voter), who has dissented from keeping interest rates on hold at the last two FOMC meetings, said the Fed will put its credibility at risk if it fails to combat inflation. He said the Fed has fulfilled its mandate to promote growth by cutting rates rapidly and taking efforts to stabilize credit markets; and though GDP is expected slow to a "snail's pace" in the second half of 2008, rising inflation cannot be ignored.

"[W]e have to be keenly aware of the consequences of our actions for inflation. We have a dual mandate-the operative words modifying growth are 'sustainable' and 'noninflationary' - and we are duty bound to deliver upon it," he said in Aspen, Colorado.

Fisher said the FOMC will not "gamble" away the Fed's credibility to bolster economic growth. "[U]ntil we have a clear sense of what will prevail, monetary policy makers must remain poised to act if slowing growth fails to contain inflationary pressures," he said.

Unless inflation moderates soon, the U.S. risks reinforcing the spreading of inflationary impulses and expectations, he said. "Should this happen and the Fed were to fail to address it, we would run the risk of losing the public's confidence in our ability to constrain inflation."

In a question and answer session after his speech, Fisher said that he was not surprised by the U.S. dollar's recovery. He added it was too soon to tell about the impact of the U.S. dollar on inflation.

Fisher noted that the current interest rates are very low and the Fed is working to "get things right".

Fisher warned that it is very dangerous to let prices get out of control, adding that the Fed's liquidity programs are a temporary way to deal with the "frozen" credit markets. Fisher said that the loan programs would unwind when necessary.

Fisher commented on interest rate policy, stating that any rate hike will not slow the recovery of credit markets. Fisher added that Fed may have to raise rates sooner than most expect.

Fisher said the Fed's actions have unblocked the markets and reduced risk, adding that the Fed should push recovery without high inflation.

By Patrick McGee and edited by Nancy Girgis