NEW YORK The Federal Reserve will keep interest rates near zero until it is confident the U.S. economic recovery has taken hold, a top Fed policymaker said in an interview on Tuesday, reinforcing the central bank's view that there would be a "considerable time" between the end of bond-buying and a move to tighten policy.
"We will hold the base rate at a low range until we're certain the recovery is well under way," Richard Fisher, president of the Federal Reserve Bank of Dallas, told Reuters.
"Whether that is six months or 'X' months, that is the intention of the (Fed's policy-setting) committee and I support that," he said of the recess between the last of the stimulative asset purchases and a tightening, adding: "Obviously you have to be watchful you don't overstay" with rates so low.
In recent days, investors have intensified the guessing game on when the central bank will start to tighten monetary policy after more than five years with rates near zero.
Following a policy meeting last week, the Fed said it expected to keep benchmark interest rates that low 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 afterward, Janet Yellen, in her first news conference as Fed chair, 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 in about a year's time, sooner than they had anticipated.
The accommodation is meant to support the U.S. economic recovery that has dragged on since the 2007-2009 recession.
Fisher voted to support last week's policy move, and on Tuesday he expressed some frustration that financial markets attached so much weight to Yellen's comment, as well as to freshly published predictions by Fed policymakers on when they individually expect the first rate-rise to come.
"What this indicates to me is that the central banks of the world have become too central to the way people think," Fisher said. As for Yellen, he said: "It was her first press conference, she was pressed on the issue (on when rates will rise), and the answer is: We'll see."
Thirteen of the Fed's 16 policymakers expect to tighten policy some time next year, with the median of officials expecting rates to rise to 1 percent by the end of 2015, according to the published predictions.
Fisher, a long-time policy hawk, said he was in the "central tendency" of the policy-setting Federal Open Market Committee, suggesting he is among those expecting a rate rise next year.
He added that it makes sense for investors to start to reconsider when rates will rise after years of "cheap and abundant money" from the central bank.
"Of course the market is going to be nervous about when that security blanket will be taken away, and how quickly. It's perfectly human," Fisher said. "But now their life will be a bit more complex; they'll actually have to do work."
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)