SAN FRANCISCO - San Francisco Federal Reserve Bank President John Williams said Wednesday he does not see justification for another round of quantitative easing at this time, but does not rule it out completely.

And the late-2014 language on keeping interest rates low is the result of economic analysis, not the way the Fed sets policy, and that too could change depending on how the economy develops, Williams said.

When the Fed implemented QE2, inflation was too low at 1%, "so it gave (the economy) another dose of medicine to give it another kick start to keep inflation from going too low," Williams said.

But in the current situation the economy is doing better, and inflation is around 2% "so the argument is not there now," he said in response to questions following a speech to local business executives at the San Francisco Planning & Urban Research Business Breakfast entitled "Monetary Policy and the Slow Recovery: It's Not Just About Housing."

"But if economy slows, or inflation falls the argument could be stronger," he said, so the option "is not off the table.

And he told reporters, there is no evidence of a brewing asset price bubble.

Williams, a voting member of the Fed's policy-setting Federal Open Market Committee this year, responded to a question from MNI on what triggers would prompt the Fed to start to unwind stimulus, and stressed that the FOMC language of late-2014 was the result of analysis, not the cause.

"In my thinking, the calendar date, the late-2014 is not how you decide to do monetary policy. How you decide to do monetary policy is you think about economic outlook, for growth, for employment, for inflation, all the factors.

"In the end after doing that analysis ... late 2014, comes out of that process," he said.

"If the economy is growing faster than I expect, or unemployment is coming down faster, or inflation were to pick up noticeably from what I expect, obviously those are the kinds of things that would make me want to raise rates earlier," Williams said, but the reverse is also true.

He noted employment has been growing in recent months, and "inflation is a little bit stronger than I had thought," but added "it's not a game changer, just not as low as I had thought."

The improving outlook means "the probability of additional stimulus is lower," Williams told reporters.

But he noted that it is not possible to target a specific unemployment rate alone, since the analysis has to look at the entire economy. And in any case there are temporary factors affecting the natural rate of unemployment, such as extend unemployment insurance, that put the rate above 6%. It should gradually come down to about 5.5%

As for the use of the calendar date in the FOMC statements -- which hawks on the committee object to -- Williams said it is the best method until the Fed comes up with "a much better way to communicate conditionality" of monetary policy.

Analysis has been more difficult given the "mixed signals we're getting on the data," with strong production but weak spending.

But "now we're seeing a little bit better spending data, so discrepancy a little less," he said, and "the downside risks are a little bit less."

Still he cautioned that there has been "a lot of debate on seasonal adjustment factors because of the unusually warm weather," and how that might be impacting the employment and other data.

Williams said he remains concerned about the situation in the Eurozone, especially the "pretty severe austerity" implemented simultaneously in many countries, which will weaken the recovery and still not rule out a crisis. This is being felt in the U.S. economy through weaker export demand.

And the lingering debt burden in Europe remains a risk. As opposed to "kicking the can down the road," as the policy response is often described, Williams told the audience he envisions a "snowball rolling down a hill" growing ever bigger.

Asked about the Fed's concerns about the potential for China to divest itself of investments in U.S. Treasuries, Williams said this is not a major worry for him, since U.S. government debt represents the "least bad option" for Chinese investment.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See

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