On Monday, John Williams, president of the San Francisco Federal Reserve Bank told listeners to remarks he gave at the SEMI 2013 Industry Strategy Symposium that:
“The Fed must do what it can to help the economy improve, I anticipate that continued purchases of mortgage-backed securities and long-term Treasury securities will be needed well into the second half of 2013.”
Williams who had voted last year as a member of the Federal Reserves policy setting panel to implement the policies he discussed in his remarks, also said that he sees the United States economy growing at about 2.5 percent in 2013 and a bit below 3.5 percent in 2014. He also offered his opinion that unemployment which was reported at 7.8 percent in the last month of 2012 will probably float at about the seven percent level through the end of 2014. Williams said that he sees inflation to stay below the Feds goal of two percent for the next few years with labor costs remaining low.
The economic forecast presented by Williams reflects his vision of the Fed keeping rates near zero into the beginning of 2015, a position that parallels that of the United States central banks own guidance on low rates.
Regarding rates, Williams had this to say:
“We will keep rates low as long as needed to promote recovery and move towards our goals of maximum employment and price stability.”
The next meeting of the Federal Reserve’s board policy setting panel occurs on January 29-30. In 2013 Williams will not have a vote on policy, however he’s one of only 19 Federal Reserve officials who participate in the creation of monetary policy under Federal Reserve Board Chairman Ben Bernanke.
At the head of the agenda for 2013 is how long will the Federal Reserve continue with its third round of quantitative easing, also known as QE3. Under QE three the Federal Reserve is spending $85 billion a month to purchase mortgage-backed securities and long-term treasuries. The Fed has said that without substantial improvement in the labor market these purchases will continue.
Williams said that the Fed also will be looking at a broad range of other indicators of economic activity. He noted that his forecast may be too optimistic as he sees a “significant risk” to the economy with uncertainty over the federal budget weighing on growth.
Take Away
Unless there are substantial improvement in the economy, John Williams, president of the San Francisco Federal Reserve Bank said in a talk on January 14, 2013 that he expects the Federal Reserve continue its QE3 policies until the labor market falls below seven percent. He does not see inflation as a threat and believes the Fed will continue its policy of keeping rates near zero until 2015.
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