Tags: fed | employment | growth

Fed’s Williams Sees Better Employment, Self-Sustained Growth

Friday, 04 May 2012 02:36 PM

Federal Reserve Bank of San Francisco President John Williams reiterated his view that the U.S. labor market is gaining strength, following a report showing the economy last month added the fewest jobs since October.

“We are still very far from our maximum employment mandate, but things are clearly improving,” Williams said today in a speech in Dana Point, California. “I am increasingly hopeful that the recovery has entered a phase of self-sustaining growth.”

Williams is the first Fed official to speak after the Labor Department today reported the economy added 115,000 jobs last month, below the median estimate of economists in a Bloomberg News survey who projected an increase of 160,000. The unemployment rate fell to 8.1 percent, the lowest since January 2009, according to the report.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

“We have now regained about 40 percent of the 8.8 million jobs lost during the downturn,” Williams said at the annual convention of the California Bankers Association. “All the same, the unemployment rate remains far too high.”

Despite signs of progress, it is “crucial that we continue our highly accommodative monetary policy,” Williams said, adding the “day is still far off” when the central bank will begin withdrawing record stimulus.

When asked when the central bank will probably need to raise the main interest rate, Williams said, “I’m in the 2014 camp.”

Tighten Policy

The central bank may tighten policy sooner if there were “upgrades to the forecast for growth and reductions in the forecast for the unemployment rate,” he told reporters after the speech.

Fed officials last week upgraded their forecasts for growth, unemployment and inflation even as they said the economy will require low interest rates through at least late 2014.

“I would think of myself as much more of a centrist” on policy, Williams told reporters.

The Fed released a table last week showing when policy makers expect to first raise the benchmark interest rate. Six policy makers want to raise rates before 2014, while four would like to hold rates near zero beyond 2014. Seven policy makers favor 2014.

Stay Subdued

Inflation will probably remain subdued, Williams said, adding that he shares the assessment of financial markets that energy prices are likely to decline.

The national average price of a gallon of gasoline has fallen to $3.80 cents, as of yesterday, according to the American Automobile Association. It rose to its highest level of the year on April 4, at $3.94 a gallon.

“We’ve seen the worst in the increase in fuel costs,” Williams said.

Data released since the April 24-25 meeting of policy makers have pointed to a mixed economic outlook. Today’s jobs report following a Labor Department report yesterday that showed initial jobless claims dropped close to the lowest level of the recovery.

Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period.

U.S. stocks declined for a third straight day on the worse- than-expected jobs figures, indicating the Standard & Poor’s 500 Index will halt a two-week advance. The S&P 500 decreased 1.5 percent to 1,371.19 at 1:18 p.m. in New York. The yield on the benchmark 10-year Treasury note declined to 1.88 percent from 1.93 percent yesterday.

Lacked Vigor

The recovery “has lacked the vigor of many past recoveries” and faces significant risks from “global economic stresses, especially the European sovereign debt situation, and budget trends at all levels of government in the United States,” Williams said.

Even if Europe avoids financial crisis, its damaged economies will reduce demand for U.S. exports, he said. In the U.S., abrupt changes to tax policies at the end of the year “if they occur, could make it harder for the recovery to gain further momentum.”

Even if policy makers in Europe and the U.S avert worst- case scenarios, the turmoil may be causing “businesses and consumers to feel uncertain about the economy’s prospects,” Williams said.

“Such uncertainty may prompt entrepreneurs to shy away from hiring and investing, and may make households wary of spending,” he said.

Williams, 49, became president of the San Francisco Fed in March 2011 after serving as that bank’s director of research. He is a voting member this year of the Federal Open Market Committee.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Friday, 04 May 2012 02:36 PM
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