Tags: Fed | stimulus | unemployment | bond

Fed's Williams Sees Unconventional Stimulus for Next Few Years

Thursday, 03 October 2013 11:48 AM

Federal Reserve Bank of San Francisco President John Williams, who has backed record easing, said the U.S. economy will probably need sustained unconventional stimulus for the “next few years.”

“U.S. unemployment is still too high and inflation is too low,” Williams said in the text of remarks prepared for a speech today in San Diego, California. He doesn’t vote on policy this year. “The appropriate stance of monetary policy is very accommodative and that will continue to be the case for quite some time,” Williams said.

The Federal Open Market Committee last month unexpectedly refrained from tapering $85 billion in monthly bond purchases, saying it wants to see more signs of sustained strength in the economy. The Fed, combating unemployment that was 7.3 percent in August, is relying on the unorthodox tools of bond purchases and communicating its intended policy path. The central bank cut the benchmark interest rate close to zero in December 2008.

“As the U.S. economy continues to improve, it will be appropriate for the Fed to start trimming its asset purchases and eventually stop them altogether,” Williams said.

The FOMC said the bond program isn’t on a preset course in a statement after a Sept. 17-18 meeting in Washington. Fiscal policy is among the factors restraining growth, the committee said. Since then Congress has deadlocked over the federal budget, prompting the first partial U.S. government shutdown in 17 years.

Government Shutdown

Williams didn’t comment on the closing in his prepared remarks, focusing largely on the future of monetary policy.

Once the Fed’s main interest rate is no longer at near-zero, the Fed should assign asset purchases to a “backup role,” he said.

“The recent outsize movements in bond rates in response to Fed communications about our current asset purchase program illustrate the difficulty in gauging the effects of asset purchases,” Williams said. “Moreover, given our limited experience, we can’t be sure of all their consequences, which may play out over many years.”

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Federal Reserve Bank of San Francisco President John Williams, who has backed record easing, said the U.S. economy will probably need sustained unconventional stimulus for the "next few years."
Fed,stimulus,unemployment,bond
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2013-48-03
Thursday, 03 October 2013 11:48 AM
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