Fed primary dealer survey: First hike likely in 2014

NEW YORK (Reuters) - U.S. primary dealers on average saw the highest probability of the first U.S. interest rate increase in the first half of 2014, according to a January survey conducted by the New York Federal Reserve that was released on Thursday.

Dealers placed almost as high a probability of the first interest rate increase in the second half of 2014, while the probability of such a rate increase before or after 2014 tapered off, according to the survey.

Primary dealers saw the second quarter of 2014 as the median for the first rate increase since the central bank cut rates to near zero in December 2008.

The survey was conducted before the Fed's January 24-25 policy meeting. At the close of its January meeting, the Fed said it would likely keep interest rates at rock-bottom levels until at least late 2014. Fed Chairman Ben Bernanke after the meeting expressed caution about recent improvements in the economy and left the door open to further Fed bond buying to boost growth.

The dealers expected 8.7 percent median U.S. unemployment for 2011, based on a fourth quarter to fourth quarter measure, then 8.5 percent for 2012 and 8.1 percent for 2013, according to the survey.

The government said earlier this month the unemployment rate in January was 8.3 percent.

The January survey is only the second survey the Fed has made public as part of an effort to increase its transparency. However, the Fed withholds details as to the specific number of dealers who responded in any particular way to each question.

There are 21 primary dealers, which are the large financial institutions that do business directly with the Fed to help carry out monetary policy and distribute U.S. debt.

The December Fed survey of primary dealers found a 45 percent chance the central bank would begin to hike interest rates from the current zero to 0.25 percent range only after the middle of 2014.

The survey results are made public a day after Federal Open Market Committee meeting minutes are released.

A Reuters poll of primary dealers conducted in early February found most dealers sticking to their belief the central bank would undertake another massive stimulus program, likely this year, in an effort to bolster economic recovery.

"Several dealers also commented on the possibility of additional asset purchases over the next two years, with some dealers specifically expecting purchases to be concentrated in agency MBS securities," the New York Fed said in its January survey.

The Fed has already completed two rounds of asset purchases, known as QE1 and QE2, under which it bought a total of $2.3 trillion in mortgage-backed securities and Treasury debt.

(Reporting by Chris Reese; Editing by Chizu Nomiyama)