INTERVIEW-Fed should give more detail on rate hike plans -Williams

Ann Saphir
Tuesday, 3 Dec 2013 | 4:19 PM ET

SAN FRANCISCO, Dec 3 (Reuters) - Concerned that investors are still not getting the Federal Reserve's message that interest rates will stay low even after the Fed stops buying bonds, a top official of the U.S. central bank on Tuesday called for the Fed to provide more details soon on what would lead it to eventually raise interest rates.

"My view would be that we would not be raising the funds rate even if the unemployment rate was below 6.5 percent, as long as inflation continued to be low, for some time," John Williams, president of the San Francisco Federal Reserve Bank, told Reuters in an interview. "I would get our communication around this post-6.5 percent, the sooner the better."

The U.S. central bank last December took the unprecedented step of pledging to keep overnight interest rates near zero until unemployment falls to at least 6.5 percent, unless inflation threatens to rise above 2.5 percent.

But unemployment has been falling more rapidly than the Fed had expected and could breach the 6.5 percent threshold faster than it currently anticipates, Williams said. Without new information about what the Fed will do at that point, he added, markets could react unpredictably.

U.S. policymakers have fretted about how markets reacted earlier this year to signals that the Fed was preparing to reduce its $85 billion in monthly bond purchases. Investors pushed up borrowing costs so fast that Fed officials worried they could undercut the still-fragile recovery.

An opposite but equally sharp reaction was seen in September when the Fed unexpectedly decided not to taper bond-buying, causing investors to push borrowing costs back down.

"The market swings way too much both ways," Williams said. "I wish in September we could have had some way of showing that any movement towards tapering is not an action that starts a whole tightening process. ... You can taper and still plan to keep interest rates low for a very long time."

As for the Fed's massive asset-purchase program, the Fed should only reduce it once it is "completely confident that the economy is on the right track," and at that point should announce an end date and a total purchase total for the program, Williams said.

The Fed began its current round of bond-buying, its third, in September 2012.

Williams will not have a vote on the Fed's policy-setting panel again until 2015, but is a centrist whose views are often in sync with Fed leadership.

(Reporting by Ann Saphir; Editing by Leslie Adler)