UPDATE 1-Latest US data should not be deciding factor in QE3 -Fed's Stein
* Central bank governor highlights September policy meeting
* Sees labor market progress since QE3 was launched in 2012
(Adds comments, background, video link)
NEW YORK, June 28 (Reuters) - As it considers scaling back asset purchases, the Federal Reserve must consider the overall economic improvements since it launched the stimulus and not give undue weight to the most recent economic data, a top Fed official said on Friday.
Highlighting the upcoming September policy meeting as a possible time when the U.S. central bank will need to consider reducing the quantitative easing program, Fed Governor Jeremy Stein ticked off several examples of improvement in the labor market since it was launched in September of last year.
A longer view is needed for the Fed's policy-setting committee to make a good judgment and to avoid undue market volatility, Stein said according to prepared remarks to the Council of Foreign Relations.
"The best approach is for the committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting - as salient as these releases may appear to be to market participants," he said.
"Even if a data release from early September does not exert a strong influence on the decision to make an adjustment at the September meeting, that release will remain relevant for future decisions," he added.
"If the news is bad, and it is confirmed by further bad news in October and November, this would suggest that the 7 percent unemployment goal is likely to be further away, and the remainder of the program would be extended accordingly."
The Fed's next meeting is July 30-31, followed by one on Sept. 17-18.
Frustrated with the slow U.S. recovery from recession, the Fed has kept interest rates near zero since late 2008 and is currently buying $85 billion in Treasury and mortgage bonds each month in its third round of quantitative easing, or QE3.
The efforts are meant to boost spending, investment, hiring and overall growth.
But Fed Chairman Ben Bernanke set off a sharp selloff in markets globally last week when, after the latest central bank meeting, he said the Fed expects to reduce the program later this year and to halt it altogether by mid-2014, as long as the economy progresses as expected.
Referencing Bernanke's comments, Stein said the Fed can be more specific about its plans for QE3 as it approaches its policy goals, which includes a "substantial" improvement in the labor market.
The fresh timeline illustrates a "greater willingness to spell out what the committee is looking for, as opposed to a 'we'll know it when we see it' approach," he said.
Stein turned some heads back in February when he warned the massive asset purchases were showing signs of inflating price bubbles in junk bonds and other markets.
But on Friday he said the benefits of QE3 have surpassed the costs of the program, including any financial-stability risks.
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)