UPDATE 1-INTERVIEW-Fed bond buys likely for rest of year-Rosengren
(Adds comments on fiscal policies, timing of QE and rate rise)
NEW YORK, Jan 15 (Reuters) - Eric Rosengren, the head of the Federal Reserve Bank of Boston, said the U.S. central bank could continue buying assets into early next year if the labor market improves only gradually, as he expects.
In a phone interview on Tuesday, the dovish Fed policymaker cautioned that any decisions on bond-buying will be based on how the tepid U.S. economic recovery unfolds through this year.
Rosengren's personal prediction is for Gross Domestic Product (GDP) growth of roughly 3 percent in the second half of 2013. That, he said, is probably not enough to lower the jobless rate to about 7.25 percent, which he sees as sufficient improvement to halt the so-called quantitative easing program, dubbed QE3.
The likely unemployment rate at that time "would probably be a little bit higher than the 7.25 percent unemployment that I'd probably like to see before I'd stop the asset purchase program," Rosengren said. "But I hope I'm wrong - I'd like to see the economy grow more rapidly.
"I would be pleased to have the asset purchase program ending earlier," added Rosengren, a voter this year on Fed policy.
U.S. unemployment stood at 7.8 percent last month, down from 8.5 percent a year earlier and from a crisis-era peak of 10 percent in 2009. But the erratic way in which joblessness has declined has left many economists uncertain where it is headed from here.
James Bullard, president of the St. Louis Fed and another voter on monetary policy this year, has said a drop to 7.1 percent unemployment could be reached by year-end and would put the Fed in a "good position" to pause its asset buying.
HALT BOND BUYS, THEN RAISE RATES
The U.S. economy grew at a respectable 3.1 percent annual rate in the third quarter, but growth is expected to have slowed in the final months of the year. The Fed expects GDP growth of between 2.3 to 3.0 percent this year.
To boost growth and get Americans back to work in the wake of the Great Recession, the Fed has kept interest rates near zero since late 2008 and has bought some $2.5 trillion in assets.
Last month the central bank also unveiled a so-called thresholds plan in which it expects to keep interest rates near zero at least until the jobless rate falls to 6.5 percent, as long as inflation expectations remain below 2.5 percent.
Rosengren, who supports a continuation of this policy accommodation, said if the economy picked up steam, QE3 could be halted six to nine months before the 6.5-percent jobless level is reached.
He also defended the use of both low rates and bond purchases, arguing they are complementary tools that work to lower longer-term interest rates, and to encourage spending and investment.
"If thresholds were sufficient to get long-term rates to drop significantly by itself, you might not need to use other tools," he said. "But that's not been the case."
FED WATCHING DEBT CEILING
Among the wild cards facing the economy is the U.S. debt ceiling, with lawmakers deep in partisan debate over whether to raise the limit by a February deadline. If they fail to do so, U.S. credit ratings could be hit, which would spill into the broader economy.
That could prompt action from the Fed, Rosengren said.
"To the extent that the economy slows down more than we intended, that would be a reason to look at whether purchases were sufficient," he told Reuters.
"If fiscal (policymakers) take actions that end up hurting the economy, it means it will be longer until we lift off on short term rates."
(Reporting by Jonathan Spicer, editing by Chizu Nomiyama)