Yellen's 6-month comment parroted market view: senior Fed official

By Jason Lange

WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen was likely just repeating the views of private analysts and investors when she said the central bank could raise interest rates around six months after ending its massive bond-buying program, a top Fed official said on Friday.

"On the considerable period being six months, the surveys that I had seen from the private sector had that kind of number penciled in," St. Louis Federal Reserve Bank President James Bullard said during a lunch with journalists. "That wasn't very different from what we had heard from financial markets. So, I just think she's just repeating that."

After a two-day policy meeting on Wednesday, the Fed said it expected to keep benchmark interest rates near zero for a "considerable time" after it wrapped up a bond-buying stimulus program, which it is widely expected to do toward the end of the year.

Pressed on the statement at a news conference afterward, Fed Chair Janet Yellen said the phrase "probably means something on the order of around six months or that type of thing." Stocks and bonds immediately tumbled as traders took the statement to suggest rate hikes could come sooner than they had anticipated.

Bullard's remark, the first from a Fed official since Yellen spoke, suggested investors may have overreacted to the statement, as many economists also believe. Futures traders on Friday continued to bet that April 2015 would mark the Fed's first rate hike. That's three months earlier than they had thought before the Fed's policy-setting meeting.

In London, Richard Fisher, the hawkish chief of the Dallas Fed, dodged a question about how he would define "considerable time."

But in answering a separate question related to the Fed's tools for exiting its extremely easy monetary policy, he suggested a rate hike was still a long ways off.

"I'm not going to put a time frame (on it) ... It will be quite some time," he said.

The question over when the U.S. central bank will first raise rates from the near-zero level they have been since late 2008 is critical to households and businesses alike as they make their plans for spending, investment and hiring.

Yellen has argued that clear communications about the Fed's policy intentions are key.

With the goal of transparency in mind, the Fed since December 2012 had promised to keep rates low until the unemployment rate fell to at least 6.5 percent, as long as inflation did not threaten to rise above 2.5 percent.

But now that unemployment has fallen to 6.7 percent, and the Fed's preferred gauge of inflation is still little more than half of its 2-percent target, policymakers this week decided to jettison that guideline.

In a statement explaining his lone dissent from that decision this week, Minneapolis Fed President Narayana Kocherlakota said the Fed was delivering the wrong message on jobs and inflation.

He repeated his view that the Fed should have promised to keep rates near zero until the unemployment rate fell below 5.5 percent, as long as inflation and financial stability risks were contained.

(Additional reporting by Ana Nicolaci da Costa and Natsuko Waki in London and Ann Saphir in Washington; Writing by Ann Saphir and Jason Lange)