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Fed's Williams Says Stimulus Still Needed to Support Growth

Thursday, 10 October 2013 02:59 PM

Federal Reserve Bank of San Francisco President John Williams, who has consistently backed record accommodation, said monetary stimulus remains necessary and that it will support faster economic growth next year.

Monetary policy is “continuing to provide needed stimulus” and the economy will maintain “steady gains in jobs,” Williams, who doesn’t have a vote on policy this year, said in the text of a speech prepared for delivery in Boise, Idaho. He said U.S. fiscal policy is restraining growth.

“As the economy continues to get better, the highly accommodative stance of monetary policy will need to be gradually adjusted back to normal,” Williams told Idaho business leaders at Boise State University. “The first step will be to slow the pace of asset purchases over time, eventually ending them altogether. This won’t be a slamming on the brakes, it will be an easing off the gas.”

Policymakers said at their Sept. 17-18 gathering that they were likely to taper their $85 billion in monthly bond purchases this year, even as they unexpectedly refrained from such a move in September, minutes of the last Federal Open Market Committee meeting released yesterday showed.

Inflation will remain “low and stable” and gradually rise toward the central bank’s 2 percent goal, Williams said.

Higher income-tax rates this year are “eating into disposable income” that reduces spending by consumers who are also facing federal budget cuts and sequestration, he said. Spending reductions are subtracting about 1.5 percentage points from economic growth, while “uncertainty” about the deadlock in Congress also hurts confidence, Williams said.

‘Nervous’ Businesses

“Business leaders are nervous about tax and regulatory policies,” Williams said. “Households are worried about jobs and future income. And everyone is uncertain about Washington’s ability to overcome gridlock, including many in Washington. None of this is bolstering anyone’s confidence.”

The FOMC, acting before the Oct. 1 government shutdown, held off tapering bond purchases and indicated that budget cuts and an increase in borrowing costs were drags on the expansion. A partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth, according to the median estimate in a Bloomberg survey of economists.

Williams, 51, became president of the San Francisco Fed in March 2011 after serving as the bank’s director of research. He earned his doctorate in economics at Stanford University and was an economist at the Fed Board in Washington and the White House Council of Economic Advisers. He joined the San Francisco Fed in 2002 as a research adviser.

The San Francisco Fed district covers Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington, American Samoa, Guam and the Northern Mariana Islands.

The Fed is set to have a new chairman after the end of Ben S. Bernanke’s term in January as President Barack Obama nominated Vice Chairman Janet Yellen this week as Bernanke’s successor. Yellen, a key architect of record stimulus, would be the first female leader in the central bank’s 100-year history.

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Federal Reserve Bank of San Francisco President John Williams, who has consistently backed record accommodation, said monetary stimulus remains necessary and that it will support faster economic growth next year.
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2013-59-10
Thursday, 10 October 2013 02:59 PM
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