WASHINGTON -- Falling unemployment and an improving U.S. economy are evidence that the Federal Reserve should start raising interest rates, a top Fed official said on Wednesday, citing risks of asset bubbles if the central bank keeps rates too low for too long.

St. Louis Fed Bank President James Bullard said he expects the unemployment rate to drop into the 4 percent range and the U.S. economy to maintain a growth rate near 3 percent over the medium term.

"Now may be a good time to begin normalizing U.S. monetary policy so that it is set appropriately for an improving economy over the next two years," Bullard said in remarks delivered at the annual Hyman Minsky conference. He added that "even with some normalization, monetary policy will remain exceptionally accommodative."

Bullard, a policy hawk who has said the Fed is already too patient in keep rates near zero, said he believes the U.S. economy is on the verge of a boom, shrugging off low inflation and a surge in the U.S. dollar as temporary.

"You want the rate path to be set appropriately for the coming boom period in the U.S. economy," Bullard said, advocating for moving on rates soon and slowly and steadily raising them from there and ensuring the market is ready for such a move.

Bullard, who is not a voting member on the Fed's policy-setting committee this year, said continued monetary policy accommodation with a roaring economy presents a "witches brew" of factors that could inflate bubbles that threaten the boom.

He also said it was okay for the Fed to raise rates and then return to near-zero levels if the economic data shows that the central bank needs to retreat.

"I don't think there's a problem with that," he said, referring to the issue of hiking rates soon and then lowering them shortly afterward if economic growth drops. Bullard said the Fed could even return to bond-buying if necessary.

Last week, hawkish Richmond Fed President Jeffrey Lacker also said hiking and then going back to near zero rates if the data demands it is okay.

Bullard, speaking to reporters afterward, said he supports expanding the Fed's reverse repurchase program if the market demand is there. That view is in contrast to several Fed officials who feel the program should be kept at its current size and fazed out as the Fed proceeds with its plans for rate lift-off.