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Fed to drop "considerable time" next week, top economist says

SAN FRANCISCO, Sept 12 (Reuters) - The Federal Reserve will drop its promise to keep rates near zero for a "considerable time" after it ends its bond-buying program, paving the way for a first Fed rate hike in June 2015, a top Wall Street economist predicted on Friday.

Michael Feroli, the JP Morgan economist who made the call in a note to investors, is the latest in a growing number of analysts who expect a more hawkish tone to emerge from the Fed's Sept 16-17 policy-setting meeting.

Just a few days ago Feroli gave the chance of such a change as "close to 50-50," but by Friday "the idea is no longer seen as so radical, and thus perhaps the Fed can get away with the change using just a few gentle words at (Fed Chair Janet Yellen's) post-meeting press conference."

His shift highlights just how important market expectations are for the Fed as it seeks to smoothly pull off its first monetary policy tightening in eight years without sending stocks and bonds sharply lower.

Futures traders this week moved to price in a June 2015 first Fed rate hike, earlier than the July 2015 liftoff seen just last week, after researchers at the San Francisco Fed published a paper showing markets were expecting the Fed to keep rates lower for longer than the Fed itself does.

Economists have also shifted their expectations forward, and now generally expect the Fed to raise rates in the second quarter of next year, according to the latest Reuters poll.

The Fed has kept overnight rates near zero since December 2008 and has bought trillions of dollars of bonds to push down borrowing costs and boost investment and hiring. It expects to wind down its current bond-buying program next month.

Still, economists are far from agreed the Fed will change its language next week. Removing the "considerable time" language, which Yellen has suggested could mean around six months, may prompt traders to conclude the Fed will raise rates as soon as March.

Economists at Morgan Stanley, led by former Fed economist Vincent Reinhart, see just a one-in-three chance that the Fed will drop the "considerable time" language at the upcoming meeting, according to a note Friday. Doing so, they said, is risky.

"The problem they have - market participants may be more dovish than their own guidance - is easier to fix than the problem they may create - market participants become more hawkish than their guidance," they wrote.

And Roberto Perli, economist for Cornerstone Macro, finesses his call. "If it doesn't happen next week," he told investors in a note Friday, "it will likely happen soon anyway." (Reporting by Ann Saphir; Editing by Chizu Nomiyama)