The US Federal Reserve will probably reduce its massive bond-buying stimulus program later this year, and depending on the economic data could do so as early as next month, a top Fed official who is typically among the most dovish policymakers says.
"We are quite likely to reduce the flow of purchases rate starting later this year - I couldn't tell you exactly which month that will be - and it's likely to wind down over time in a couple or few stages," Charles Evans, president of the Chicago Federal Reserve Bank, told reporters at the regional Fed bank's headquarters overnight.
Asked if he would rule out starting the cutbacks next month, Mr Evans said he "clearly" would not, becoming the third Fed official in two days to suggest a September pullback is on the table.
Fed policymakers, who last week voted to continue the central bank's $US85 billion-a-month bond-buying program, next gather to discuss policy on September 17 and 18.
Still, Mr Evans, who is a voting member of the Fed's policy-setting committee this year, said the US central bank would keep short-term interest rates near zero until unemployment falls below 6.5 per cent, which he expects could happen in mid-2015.
As a result, rates could stay low for a year, or more, after the bond-buying program ends, he said, though that time frame could be shorter if economic growth goes "roaring along" at more than 3.5 per cent.
He also said that if inflation continues to stay well below the Fed's 2 per cent target, the US central bank could keep rates low even after the jobless rate falls below the 6.5 per cent threshold.
And in what he called the unlikely event that inflation remains stuck at uncomfortably low levels, Mr Evans said rates could stay low even after the jobless rate falls below 6 per cent.
All told, Mr Evans said, the Fed's third round of quantitative easing, or QE3, will likely total at least $US1.2 trillion since January 2013, double the size of the Fed's prior round of purchases.
"That's quite substantial," he said. "Even if we were to start (cutting back) in September it seems to me it would be quite unusual if we didn't have a program of that size."
The other two Fed officials this week to signal the possibility of a September pullback on bond purchases were Richard Fisher, president of the Dallas Fed, and Dennis Lockhart, head of the Atlanta Fed.
Mr Fisher on Monday said he would prefer to start cutting back on bond-buying next month, while Mr Lockhart said on Tuesday that the Fed could make reductions starting in September, or wait longer if economic growth fails to pick up.
When and by how much the Fed will reduce its bond-buying program, which is aimed at pushing down long-term borrowing costs and thus spurring hiring and investing, is a subject of intense market speculation.
Economists at about half of Wall Street's most influential banks see the Fed starting to pull back on purchases next month, with most of the rest forecasting cuts by the end of the year.
Mr Evans said he expects the economy to grow about 2.5 per cent in the second half of this year, and more than 3 per cent next year. That rate of growth should generate about 175,000 to 200,000 jobs a month and will probably bring the unemployment rate down to about 7.2-7.3 per cent by the end of the year, he said.
The latest government report showed that unemployment fell to 7.4 per cent last month.
Fed chairman Ben Bernanke said in June that the Fed could start to reduce bond purchases later this year, with an eye to ending them by the middle of next year, when the jobless rate is likely to be about 7 per cent.
Mr Evans said his outlook for the asset-purchase program is consistent with Mr Bernanke's timeline, even though he has had to mark down his economic growth forecast for the year after sluggish first-half growth.
Mr Evans also backed down from his earlier view that the economy would need to add at least 200,000 jobs each and every month for six months before he would support ending the bond-buying stimulus.
"I have to admit I have sort of rethought that a little bit," he told reporters, saying that more people were leaving the workforce than he had expected, resulting in a quicker drop in the jobless rate than he would have thought, given still modest growth.
But, he said, if headwinds from domestic fiscal contraction and the European economic slowdown abate, the "updraft" from an improving housing market should help fuel US growth, despite a jump in mortgage rates after Mr Bernanke in June signaled that a reduction in bond-buying could come over the next several months.