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UPDATE 1-Fed's Lockhart sees low interest rates for 'quite a while'

Emily Stephenson
Thursday, 27 Feb 2014 | 5:47 PM ET

ATLANTA, Feb 27 (Reuters) - The Federal Reserve will probably keep benchmark interest rates low for "quite a while" even as the U.S. central bank begins to raise them from their current near-zero level, a top Fed official said on Thursday.

Atlanta Fed President Dennis Lockhart told a conference in Atlanta that he expects the Fed to begin raising rates in mid-2015 but to do so slowly. Lockhart is a policy centrist whose views often reflect those at the core of the central bank.

"I think it's going to be a while before lift-off," Lockhart said. "I think we will be in this low interest rate environment for quite a while."

Speaking on the same panel, the hawkish chief of the Kansas City Fed, Esther George, said it could be important to move toward a more normal rate environment "sooner rather than later" in light of financial stability concerns and the need to head off any threat of future inflation.

Lockhart and George spoke on a wide-ranging set of topics at a conference hosted by the Atlanta Fed on the outlook for banking in the next year.

Both officials said they thought new Fed Chair Janet Yellen, who took over from Ben Bernanke this month, would provide continuity for the central bank going forward.

They also said they thought regulators had more work to do before they could claim to have ended the problem of "too big to fail" banks, which refers to banks that are so big their failure would threaten financial markets.

U.S. officials have been working to implement the 2010 Dodd-Frank financial oversight law, including revamping mortgage underwriting and servicing and cracking down on big non-bank financial firms.

Some of the biggest requirements are done, including the controversial and long-awaited Volcker rule to curb proprietary trading. But others, such as working out how to resolve giant, failed banks without bailing them out, are still in progress.

"I would suggest we haven't ended 'too big to fail,' and that's because we have not ... completed the work that has been assigned," George said.

She said regulators must crack down on the so-called shadow banking sector and that she supports a proposed leverage ratio that would limit how much banks can fund themselves through debt.

Lockhart said he thought the risk of a big bank requiring a bailout was much lower today, but that the mega-bank problem was still a "condition" regulators are treating rather than one that had been cured.