The central bank's gradual approach to raising interest rates in quarter-percentage-point increments over the past 10 months "was appropriate", Parry said, but he stopped short of saying it remained appropriate.

"I think we have moved cautiously but that doesn't mean that we only have a single note to play," Parry told the Northern California Financial Planning Conference.

"The Fed can play more than one note. And in addition to that, I'm not sure that I would necessarily consider a second note as being inconsistent with caution," said Parry, who votes on the Fed's policy-making Federal Open Market Committee (FOMC) this year.

Leading Wall Street investment firms increasingly expect the Fed to shift away from its drip-drip approach of raising rates in small quarter-point increments and order a more aggressive increase of half point rate increase at the next meeting of the FOMC on May 16.

A government report on Friday showing the US unemployment rate fell to a 30-year low of 3.9 percent in April convinced 26 of the 29 primary dealers of US government securities that the Fed would shift into a higher gear at the next meeting, according to a Reuters survey.

But there have been few hints from Fed officials indicatinga shift is imminent and this has left some doubt as to what the Fed will do next.Federal Reserve Governor Edward Gramlich, speaking in Michigan on Tuesday, did not specifically address the overall economy and interest rates, but he said it was important for the Fed to act preemptively to stem inflationary pressures.

In his speech to the Financial planners, Parry acknowledged that financial markets were pricing in a 75-85 percent chance of a half-point rate hike next week and did nothing to try to dispel that notion. "I don't know where it all ends up after we have our FOMC meeting," he said. "The Fed is interested in getting the growth rate of the entire economy down to a more sustainable rate."Parry did not pinpoint what rate of growth he sees as sustainable. But most Fed officials would put the number somewhere between 3 percent and 4 percent per year.

In the first three months of this year, US gross domestic product rose at 5.4 percent annual pace, and that was slower than the blazing 7.3 percent pace at the end of last year. Treasury prices initially dipped on Tuesday as investors interpreted Parry's remarks to mean he favoured gradual rate rises, fearing the Fed might slip in its fight against inflation.