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Former Federal Reserve Chairman Alan Greenspan said the central bank risks higher inflation by 2012 if it waits too long to start curtailing its unprecedented monetary stimulus.

“We cannot afford to get behind the curve on reining in this extraordinary amount of liquidity because that will create a major increase in inflation down the road,” Greenspan said today at a forum in Washington. “The earliest it could really start to move is probably 2012, conceivably late 2011.”

Greenspan, 83, said Fed policy poses little short-term inflation risk because the economy remains in the midst of “a disinflationary process,” and demand for credit continues to be subdued.

Fed policy makers are debating the timing and conditions of an exit from their unprecedented monetary easing. The Fed last week said its benchmark interest rate was likely to remain near zero for an “extended period” and committed to buying the full $1.25 trillion of its mortgage-backed securities purchase program.

“What the data show is that when money supply begins to run up it takes several years before it impacts on the price level,” Greenspan said at the forum sponsored by the Atlantic, the Aspen Institute and the Newseum lowest fee payday loans. “So we’ve got time to adjust the process.”

Still, he added, if the Fed waits too long, the risk is that “all of a sudden you get behind the curve.”

The Fed provided an unprecedented amount of credit to the economy as growth collapsed at a 6.4 percent annual rate in the first quarter.

Backstop loans for banks and the commercial-paper market, and support for housing finance and asset-backed securities markets, have boosted total assets on the Fed’s balance sheet to $2.1 trillion, an increase of $948 billion from a year ago.

U.S. payrolls dropped by 263,000 in September, more than forecast by economists, a Labor Department report showed today. The jobless rate rose to 9.8 percent last month, the highest level since 1983, from 9.7 percent in August.

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