The Fed's tapering of asset purchases will not be based on the calendar, only on data, Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.
"As the economy continues to get better, the highly accommodative stance of monetary policy will need to be gradually adjusted back to normal," he told Boise business and community leaders, according to prepared text released by the Fed. "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. And it will not be a fixed date on the calendar. Instead, it will be in response to economic developments and the progress we have made towards our dual goals of maximum employment and price stability."
Raising short-term interest rates will come later, he noted, reiterating that the Fed policy says the exceptionally low rates will be appropriate "at least as long as" the jobless rate is above 6.5%. "Once unemployment falls below that threshold, we'll evaluate how the recovery is progressing and decide on the appropriate course for the federal funds rate then," Williams said.
Williams projects the unemployment rate to drop below 6.5% "early in 2015," but doesn't see the federal funds rate rising "until well after that, sometime in the second half of 2015."
