Fed's Williams sees rate hike in mid-2015 as jobless rate falls

SEATTLE Wed Mar 5, 2014 10:35pm EST

SEATTLE (Reuters) - The Federal Reserve will probably need to start raising short-term U.S. interest rates in the middle of next year as economic growth picks up and the jobless rate falls, a top Fed official said on Wednesday.

"My own view, based on my own forecast, is that it would be sometime around the middle of next year. It could be later or earlier, depending on how the economy does," San Francisco Fed President John Williams told reporters after a speech to students at the University of Seattle.

The economy will probably grow around 2.5 percent this year, and about 3 percent next year, he said. That will bring the unemployment rate down to about 6.25 percent at the end of this year and to around 5.5 percent at the end of next year.

But because of the lasting damage of the financial crisis to the economy, Williams said, the Fed may not raise rates all that high, at least at first.

"My own view is that we still have significant, if you will, headwinds to the economy over the next several years that are still slowing growth in terms of demand, relative to trend, so that we need a lower real interest rate, fed funds rate, than you would in say, over history," he said.

(Reporting by Ann Saphir; Editing by Lisa Shumaker)

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