The Federal Reserve's bond-buying program and its promise to keep borrowing rates near zero until the unemployment rate drops further are working exactly as planned, a top Fed official said on Friday, as he cited gains in jobs and economic growth.
While the jobless rate is still too high and the pace of the recovery is frustratingly slow, "we have made a lot of progress, and I expect that to continue for the foreseeable future," John Williams, president of the San Francisco Federal Reserve Bank, said in remarks prepared for delivery at a community leaders luncheon in Los Angeles.
Williams enumerated the progress: 2.2 million jobs added over the last year and an unemployment rate now at 7.3 percent, down sharply from its 8 percent level roughly a year ago. And auto sales and the housing market, both of which benefit when borrowing rates are lower, have strengthened.
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"This is evidence that our monetary policy medicine is working," Williams said.
Assuming continued super-easy Fed policy, the progress should continue, he said, with the economy growing fast enough to add a significant number of jobs and push down unemployment in 2014 and 2015.
He also forecast inflation, now running well below the Fed's 2 percent target, will rise back to that level gradually.
Williams, who does not vote on the Fed's policy-setting panel this year, did not say how long he expects the Fed to continue to buy bonds. Earlier this week he said he would like to see the bond-buying program continue until the Fed is convinced the economic growth has staying power.
The Fed is buying $85 billion in Treasuries and housing-backed securities each month to push down long-term borrowing costs, and it has promised to keep its short-term interest-rate target near zero until unemployment falls to at least 6.5 percent.
Williams blamed some of the slow recovery on tight fiscal policy, which this year has chopped about 1.5 percentage points from growth, he said.
Although the United States in the long run must put itself on a sustainable fiscal path and reduce consumer spending to free up more money for investment, he said, in the short-term what it needs is a bigger boost from consumer spending.
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