QE3 to end well before late 2014, Fed's Williams says

SAN FRANCISCO, Sept 24 (Reuters) - The Federal Reserve will probably put an end to its latest round of bond buying "well before" late 2014, a top Fed official said on Monday.

That's when the policymaker, John Williams, president of the San Francisco Federal Reserve Bank, said he sees unemployment dropping to about 7.25 percent - still above normal levels, but a substantial improvement from today's 8.1 percent.

The Fed earlier this month began a third round of quantitative easing, or QE3, buying mortgage-backed securities to boost the economy. It will likely add Treasury purchases in the new year, when its current Operation Twist expires, to keep total asset purchases at $85 billion, he said.

The Fed will likely keep interest rates low until at least mid-2015, Williams added, reiterating language from the Fed's latest policy statement.

But it will need to raise rates, now near zero, well before unemployment returns to its normal long-run level of 5.5 percent, he told reporters after a speech.

Williams' comments stand in contrast to those of Minneapolis Fed President Narayana Kocherlakota, who last week advocated a Fed promise to keep buying assets until unemployment reaches 5.5 percent, as long as inflation does not threaten to breech 2.25 percent.