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Williams Supports 'Powerful' Accommodation

The Fed needs to provide "powerful and continuing monetary accommodation," Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.

"The Fed's dual mandate from Congress is to pursue maximum employment and price stability. We are missing on both of these goals, with severe consequences for American households and businesses," Williams told the Forecasters Club in Manhattan, according to prepared text released by the Fed. "Unemployment is far too high and inflation is too low. Sometimes our maximum employment and price stability goals can conflict. But that's not the situation today. Moreover, an aggregate demand shortfall is exactly the kind of problem monetary policy can - and should - address. We need powerful and continuing monetary accommodation to move toward our mandated goals."

Inflation remains near the Fed's goal. "Both the employment and the inflation signals are flashing the same message, and that is that strong monetary stimulus is essential," Williams said. "I am convinced we are charting the best course to lead us toward maximum employment and price stability."

The high level of unemployment results from "a lack of demand," which makes it "crucial" for the Fed to "keep doing all it can to help the economy return to full employment," Williams said.

"Supply-side considerations explain only some of the rise in unemployment," he added. "Most of that rise is explained by a lack of labor demand."

Before the recession, the natural rate of unemployment was thought to be between 4.75% and 5.00%, but the economic ills and the responses to it have added one percentage point to the rate, but that should reverse eventually.

The economy shows signs it may be ready "to shake off its doldrums," Williams said, noting improvement in autos and housing, both sensitive to interest rates. GDP should rise 2.75% this year and 3.25% next year, with unemployment "at or above 7% at least through the end of 2014," not falling below 6.5% until the second half of 2015.

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