With strong underlying economic growth, normalization can proceed at a gradual pace, Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.
"My preferred route is a gradual path of increases," he told a Town Hall Los Angeles meeting, according to prepared text release by the Fed. "This reflects the fact that the economy still needs a gentle shove forward from monetary policy, as we continue to navigate the headwinds from weakness abroad and their effects on the dollar and commodity prices."
But, looking at the U.S. economy by itself, "it shows strong growth," Williams said. "We're just contending with outside forces."
Williams sees inflation approaching 2 percent within the next two years, but he said, he is "aware of, and closely monitoring, potential risks."
The decline in oil prices and the dollar's strength "naturally influenced near-term inflation," he said. "But the effects should peter out."
But some discussion, or concern, about the economy and monetary policy needs to "be seen in context" since while it may "sound alarming, and can give a false impression of what motivates monetary policymakers."
And, he noted, the stock market isn't an accurate reflection of the economy. "Short-term fluctuations or even daily dives aren't accurate reflections of the state of the vast, intricate, multilayered U.S. economy. And they shouldn't be viewed as the four horsemen of the apocalypse," he said.
"From a policymaker's perspective, my concern isn't as simple as whether markets are up or down," Williams added. "Watching a stock ticker isn't the way to gauge America's economic health. As Paul Samuelson famously said, the stock market has predicted nine out of the past five recessions. What's important is how it impacts jobs and inflation in the U.S."
International developments also matter only how they affect jobs or inflation.
"Yes, global markets affect U.S. growth; but we are also powered by domestic demand and have the ability to make our own monetary policy," he said. "With the policy tools at our disposal, we can continue to achieve our employment and inflation goals. Ultimately, monetary policy has been supporting the expansion of the U.S. economy, allowing it to become stronger and stronger, and the domestic demand we're seeing reflects its underlying might."
"Despite recent financial volatility, my overall outlook for the U.S. and the global economy remains unchanged," he said.
Defending economists, Williams suggested, they don't change their answers, they adjust their forecasts based on data.
