By Jeffrey Hodgson

TORONTO (Reuters) - The Federal Reserve is poised to evaluate and potentially make changes to its massive monetary stimulus, a top Fed official who is critical of the Fed's bond-buying program said on Tuesday.

To counter the financial crisis, the Fed dropped short-term interest rates to zero in late 2008 and has since bought more than $2.5 trillion in bonds to bolster what has been an anemic economic recovery. Financial markets have been increasingly on edge on expectations that the Fed is ready to start scrolling back on its stimulus.

"The plot now thickens," Richard Fisher, president of the Dallas Federal Reserve Bank, said. He likened developments in the Fed's monetary policy to a Shakespearean play starring a "daring captain," Fed Chairman Ben Bernanke, steering the ship of the U.S. economy.

"Act IV, just beginning, will involve the drama of introspection, with the FOMC evaluating the utility of its navigational tactics, and, perhaps, fine-tuning them, if not altering the course," Fisher said, referring to the Fed's policy-setting Federal Open Market Committee, in remarks prepared for delivery to the C.D. Howe Institute Directors' Dinner in Toronto.

"Only time will reveal the efficacy of current policy and whether the risks that I and more experienced observers like Paul Volcker fret over are as substantial as we surmise, or whether we have made much ado about nothing," he added. Volcker was the chairman of the Fed from 1979 to 1987.

Fisher is a longtime critic of the Fed's current bond-buying program, the Fed's third round of quantitative easing, known as QE3. He argues it has done little to help the economy and poses a risk of doing great harm.

Last week Volcker, who led the U.S. central bank's aggressive battle against inflation, also sounded a warning on QE3, saying that central banks are often too late in removing stimulus.

Fisher on Tuesday did not repeat his call, made most recently last month, for the central bank to cut back immediately on its $85 billion in monthly bond purchases, though he did reiterate his concerns.

While chances are "extremely low" that monetary policies will help push inflation above the Fed's 2 percent target this year, the bond-buying program is, "at best, pushing on a string and, at worst, building up kindling for speculation and, eventually, a massive shipboard fire of inflation," he said.

Uncertainty over U.S. fiscal policy is keeping businesses from hiring, he added, negating the power of the Fed's super-easy policies.

Even so, recent job gains and retail sales suggest the recovery is strong enough "to propel hopes that consumption will help employment growth gradually improve over the long term," Fisher said.

Unemployment is expected to remain at 7.5 percent when the U.S. government releases its May jobs report this Friday.

Bernanke last month said the central bank needs to see further signs of traction before easing up on its monetary stimulus, but also said a decision to do so could be made at one of the Fed's "next few meetings" if the economy looked set to gain momentum.

(Writing by Ann Saphir; Editing by Leslie Adler)

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