Federal Reserve Bank of San Francisco President John Williams said the Fed as early as this summer may begin slowing the pace of its $85 billion in monthly bond-buying amid signs the economy is gradually gaining strength.
“It’s clear that the labor market has improved since September” when the Fed began its third round of asset purchases, Williams said in the text of a speech in Portland, Oregon.
“We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year.
The Federal Open Market Committee said May 1 that it’s prepared to increase or decrease the size of its monthly bond-buying as officials gauge the health of the economy. The unemployment rate fell to 7.5 percent in April, Labor Department figures showed May 3.
Williams was one of the first Fed officials to advocate that the central bank buy bonds without setting a limit on the duration or total for such purchases.
The Fed has pumped up its balance sheet to $3.32 trillion through so-called quantitative easing.
“Even if we slow the pace of our purchases, it does not mean we would be tightening monetary policy or stepping back from our commitment to provide strong monetary support as the economy recovers,” said Williams, who doesn’t vote on the FOMC this year.
The FOMC affirmed on May 1 that it will press on with bond buying until achieving substantial improvement in the job market.
Reports released since the Fed gathering have painted a mixed outlook for the U.S. economy. More Americans than projected filed claims for jobless benefits last week and manufacturing in the Philadelphia region unexpectedly shrank in May, data showed.
The jobless rate will probably fall below 7.5 percent at the end of this year and “a shade below” 7 percent at the end of 2014, Williams said. Real gross domestic product may grow almost 2.5 percent this year and 3.25 percent next year, he said.
“It will take further gains to convince me that the ‘substantial improvement’ test for ending our asset purchases has been met,” the San Francisco Fed chief said.
“Assuming my economic forecast holds true and various labor market indicators continue to register appreciable improvement in coming months, we could reduce somewhat the pace of our securities purchases, perhaps as early as this summer.”
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