Federal Reserve Bank of San Francisco President John Williams said Tuesday that the central bank must continue to act “vigorously” to boost the economy and sustain labor market gains.
“We are far below maximum employment and are likely to remain there for some time,” Williams said in the text of remarks given Tuesday in San Diego. “Under these circumstances, it’s essential that we keep strong monetary stimulus in place. The recovery has been sluggish.”
The policy-setting Federal Open Market Committee on March 13 maintained its pledge to keep interest rates low through at least late 2014, noting improvements in employment while also saying “significant downside risks” remain. Still, policy makers saw no need to roll out new easing measures unless growth faltered, minutes of last month’s meeting showed Tuesday.
Recent data signal a strengthening U.S. recovery, with an improving labor market encouraging consumers to spend more in the world’s largest economy. The unemployment rate has fallen to 8.3 percent, its lowest in three years.
“Unfortunately, the kind of moderate economic growth I expect won’t sustain such rapid progress” in the job market, Williams said. The time to begin tightening monetary policy is “still well off in the future,” he told students at the University of San Diego.
Williams forecast economic growth of 2.5 percent this year and 2.75 percent in 2013. The unemployment rate will remain around 8 percent at the end of 2012, and is likely to be about 7 percent at the end of 2014, he predicted, according to the prepared remarks.
“I’m encouraged by recent signs of a stronger, self- sustaining recovery,” Williams said. “I’m especially glad to see that the economy is adding jobs at a pretty decent clip. Still, we have a long way to go.”
U.S. stocks extended losses today and Treasuries fell as minutes from the FOMC’s last meeting showed central bankers are holding off on increasing monetary accommodation unless the U.S. economic expansion falters. The Standard & Poor’s 500 Index of stocks lost 0.7 percent to 1,409.42 at 3:14 p.m. in New York, retreating from an almost four-year high.
“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of that meeting released today in Washington. “Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014.”
Consumer spending in February grew 0.8 percent, marking the biggest gain in seven months, Commerce Department figures showed March 30. Manufacturing growth accelerated in March, according to the Institute for Supply Management’s index released April 2.
Williams, 49, is a voting member of the FOMC this year. He became the San Francisco Fed’s president in March 2011 after two years as its director of research.
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