US Fed likely to boost QE3 at year-end

The U.S. Federal Reserve will probably need to maintain its current monthly pace of $85 billion in long-term securities purchases beyond the year's end, when a program accounting for about half the total expires, Chicago Fed President Charles Evans said on Tuesday.

The Fed last week said it would make monthly purchases of $40 billion in mortgage-backed securities to boost the economy, on top of the current $45 billion it buys monthly in long-term Treasuries even as it sells a like amount of short-term Treasuries. That program, known as Operation Twist, runs through the end of 2012.

The Fed said it would continue its new round of bond purchases, known as QE3 because it is the Fed's third bout of so-called quantitative easing, until the labor market improves substantially.

"I would be surprised if we would see enough evidence of that by the end of this year," Evans told reporters after a speech here. "Under those conditions, I would expect we would continue with something like an $85 billion base of purchases."

If the labor market improves as he expects, asset purchases could begin to taper in 2014, before the unemployment rate - now at 8.1 percent - falls to what he forecasts to be a level just above 7 percent by the end of that year, he said. Rates would stay low through mid-2015, as the Fed currently anticipates, he said.

Evans, who is not a voter on the Fed's policy-setting panel, said decisions would of course be up to the central bank's Federal Open Market Committee, and there would be a "robust" discussion of what constitutes enough labor market improvement to merit tapering asset purchases.