Fed's Williams: If Data Holds, Tapering Likely Later This Year

WASHINGTON — John Williams, president of the Federal Reserve Bank of San Francisco, said the decision to pull back on quantitative easing will be data dependent, but if the data continues as expected, he would "edge down" purchases later this year.

"In my view, this has to depend on the data," Williams said in an interview with CNBC Friday from Jackson Hole. "My view has basically followed more or less my expectations of how the economy would evolve since then." Williams, who doesn't vote on the FOMC this year or next, said "if the data continues to progress as we've seen, then I do agree that we should edge down or taper or purchases later this year."

Williams said he "still expects there to be a significant step up later in the year" in GDP growth, "And in 2014 especially as the fiscal restraint on growth steps back."

He also said he expects the Fed's purchases to last into next year. "Given that we still have a long ways to go in terms of achieving a longer run goals ... I expect that we'll continue our purchases well into next year as the chairman said. We'll probably continue them until the middle of next year," Williams said.

The tapering is likely to proceed in gradual steps over time, Williams said. "I would see it as a gradual series of steps of tapering, assuming our forecast comes true."

Asked about whether the markets really separate the decision of tapering from the decision to raise interest rates, Williams said, "To the extent that we adjust our purchases, that in no way is signaling a removal of monetary accommodation or raising rates, and I'm hoping our forward guidance is helpful in that regard of separating these two," he said.

As for interest rates, Williams says he wouldn't expect rates to rise until later in 2015. "Looking at my forecasts, I'm expecting unemployment to fall below 6.5% in first half, early, 2015. I would expect we wouldn't start raising rates, given the expectation of inflation will still be below our goal, until later in 2015."

Williams said he isn't as concerned about the low inflation now as he was earlier in the year. "We saw readings, on our preferred inflation measure, get down to 1% which is quite low," he said. "At the same time, our analysis suggests there were some temporary factors, and what we've seen in the last few months supports that view. We're seeing inflation moving back up, not high, but moving back towards our 2% goal."

He generally reiterated these views on a subsequent interview with Bloomberg TV.

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