The U.S. Federal Reserve's super-easy monetary policy has not been enough to usher in a strong economic recovery, and the central bank may need to do more if growth stalls, a top Fed official said Thursday.
The Fed has kept interest rates near zero for more than two and a half years and has bought $2.3 trillion in long-term securities to further boost the economy after the worst downturn in decades.
But with the recovery "stuck in second gear" and job creation slowing to a crawl, the Fed's job is not yet done, San Francisco Fed Bank President John Williams said.
"If the recovery stalls and inflation remains low or deflationary pressures reemerge, then we may need to keep our very stimulatory policies in place for quite some time or even increase stimulus," Williams said in remarks prepared for delivery to a group of community leaders forum in Salt Lake City. "On the other hand, assuming growth picks up and inflation doesn't fall too low, then at some point we'll need to start gradually removing stimulus."
Williams' remarks were in line with those of Fed Chairman Ben Bernanke earlier this month, who said the Fed was prepared to act if growth deteriorated much further.
Williams, who gets his first vote on the Fed's policy-setting panel next year, said that while he expects growth to pick up, to about 3 percent in the second half of 2011 and next year, he also sees inflation falling to 1.5 percent, well below the Fed's 2 percent target.
Unemployment, he projected, will fall to only 9 percent by the end of this year, from 9.2 percent today, and to the still-high rate of 8.25 percent by next year.
The economy still faces serious challenges beyond what he expects to be the short-lived supply disruptions from Japan's earthquake and higher energy prices that slowed first-half growth to an estimated annual rate of 1.5 percent, Williams said.
"While these transitory factors depressed first-half growth, it would be wrong to suggest that we are only swimming against a temporary tide," he said.
Deep, persistent problems include a moribund housing market, tight credit conditions, and lower household and government spending, he said.
Williams was a strong supporter of the Fed's controversial second round of quantitative easing, known as QE2, that ended last month. That program, he said on Thursday, helped prevent the United States from falling into deflation.
Some Fed officials, including Chicago Fed President Charles Evans, say they would rather give verbal assurances that rates will stay low for a long time rather than a return to bond buying, which has proven controversial.
Williams did not say by what method he would prefer to add stimulus, if it were called for.
At some point, he said, once growth picks up, the Fed will need to withdraw stimulus, and the Fed laid out its exit plan after its most recent policy meeting in June.
"As always, the direction of policy, and the timing and pace of any policy actions, will be dictated by the evolution of the economy," he said.
Source: www.reuters.com
The Fed has kept interest rates near zero for more than two and a half years and has bought $2.3 trillion in long-term securities to further boost the economy after the worst downturn in decades.
But with the recovery "stuck in second gear" and job creation slowing to a crawl, the Fed's job is not yet done, San Francisco Fed Bank President John Williams said.
"If the recovery stalls and inflation remains low or deflationary pressures reemerge, then we may need to keep our very stimulatory policies in place for quite some time or even increase stimulus," Williams said in remarks prepared for delivery to a group of community leaders forum in Salt Lake City. "On the other hand, assuming growth picks up and inflation doesn't fall too low, then at some point we'll need to start gradually removing stimulus."
Williams' remarks were in line with those of Fed Chairman Ben Bernanke earlier this month, who said the Fed was prepared to act if growth deteriorated much further.
Williams, who gets his first vote on the Fed's policy-setting panel next year, said that while he expects growth to pick up, to about 3 percent in the second half of 2011 and next year, he also sees inflation falling to 1.5 percent, well below the Fed's 2 percent target.
Unemployment, he projected, will fall to only 9 percent by the end of this year, from 9.2 percent today, and to the still-high rate of 8.25 percent by next year.
The economy still faces serious challenges beyond what he expects to be the short-lived supply disruptions from Japan's earthquake and higher energy prices that slowed first-half growth to an estimated annual rate of 1.5 percent, Williams said.
"While these transitory factors depressed first-half growth, it would be wrong to suggest that we are only swimming against a temporary tide," he said.
Deep, persistent problems include a moribund housing market, tight credit conditions, and lower household and government spending, he said.
Williams was a strong supporter of the Fed's controversial second round of quantitative easing, known as QE2, that ended last month. That program, he said on Thursday, helped prevent the United States from falling into deflation.
Some Fed officials, including Chicago Fed President Charles Evans, say they would rather give verbal assurances that rates will stay low for a long time rather than a return to bond buying, which has proven controversial.
Williams did not say by what method he would prefer to add stimulus, if it were called for.
At some point, he said, once growth picks up, the Fed will need to withdraw stimulus, and the Fed laid out its exit plan after its most recent policy meeting in June.
"As always, the direction of policy, and the timing and pace of any policy actions, will be dictated by the evolution of the economy," he said.
Source: www.reuters.com
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