Tags: Fed | Williams | Wand | Growth

Fed's Williams: ‘No Magic Wand’ to Strengthen Growth

Friday, 04 November 2011 08:01 PM

Federal Reserve Bank of San Francisco President John C. Williams said he sees merit in waiting to see the impact from the central bank’s two most recent policy actions before supporting additional stimulus for the economy.

“Right now, we’re at an appropriate place for policy,” the regional bank chief told reporters today after a panel discussion in Santa Clara, California. “We just took two pretty strong policy actions” and, if needed, new purchases of mortgage-backed securities may help the recovery more than buying Treasuries.

The central bank, grappling with unemployment that’s still “far too high,” may take new steps to boost growth, such as buying mortgage bonds or changing the way it communicates its policy goals to the public, Fed Chairman Ben S. Bernanke said after the Federal Open Market Committee’s two-day meeting ended Nov. 2. Williams, 49, is the first Fed official to publicly discuss policy since the gathering.

Referring to purchases of mortgage bonds, Williams said that “if it were appropriate to add more stimulus, then that’s a tool we definitely have.”

Policy makers this week left unchanged their plans to lengthen the maturity of the Fed’s bond portfolio, known as Operation Twist, and to keep the target federal funds rate near zero through at least mid-2013 as long as unemployment remains high and the inflation outlook remains “subdued.”

The central bank has no “magic wand” available as it tries to boost economic growth, and U.S. officials need to focus on resolving fiscal challenges, the regional president said during the panel discussion, Williams said.

Stimulate Economy

“We’re working very hard using monetary policy to try to stimulate the economy,” he said at the Silicon Valley Leadership group’s annual Public Policy Conference luncheon. Still, “we don’t have a magic wand at the Federal Reserve,” and political leaders need to “come to an agreement to bring long-term fiscal problems to order,” he said.

The U.S. jobless rate unexpectedly fell in October while employers added fewer workers than forecast. The unemployment rate declined to a six-month low of 9 percent from 9.1 percent, even as the labor force grew. The 80,000 increase in payrolls followed gains in the prior two months that were revised up by 102,000, Labor Department figures showed today in Washington.

Fed officials said this week “significant downside risks” remain for the economy and reduced their economic-growth projections compared with June. They also said the unemployment rate will decline at a slower pace.

GDP Will Rise

Gross domestic product, adjusted for inflation, will rise by 2.5 percent to 2.9 percent next year, compared with a range of 3.3 percent to 3.7 percent from the prior projections, according to the median range of economic projections from the 17 governors and regional Fed presidents.

The jobless rate in the fourth quarter of 2012 will range from 8.5 percent to 8.7 percent, up from the previous forecast of 7.8 percent to 8.2 percent, the Fed said in a release separate from the FOMC statement.

Stocks, the euro and Italian bonds fell as a disagreement on boosting the International Monetary Fund’s resources to fight Europe’s debt crisis overshadowed the drop in the U.S. jobless rate.

The Standard & Poor’s 500 Index lost 0.6 percent to close at 1,253.23 in New York, paring a drop of as much as 1.8 percent.

Williams said he expects the U.S. economy to expand by less than 2.5 percent next year. Inflation, excluding food and energy, should rise by 1.5 percent during the next year or two, he said.

The San Francisco Fed president was a senior economist for the Council of Economic Advisers during the Clinton administration. The Sacramento native succeeded Janet Yellen, now the Fed board’s vice chairman, and will become a voting member of the rate-setting FOMC next year.

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Federal Reserve Bank of San Francisco President John C. Williams said he sees merit in waiting to see the impact from the central bank s two most recent policy actions before supporting additional stimulus for the economy. Right now, we re at an appropriate place for...
Friday, 04 November 2011 08:01 PM
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