WASHINGTON — Recent news on the economy has been positive, even in the jobs market, and there is a renewed sense of optimism, but the economy clearly still needs “extraordinarily supportive” monetary policy, Federal Reserve Bank of San Francisco president John Williams said Thursday.
Williams stressed that the Fed’s policy guidance on keeping rates near zero through 2014 is not a commitment, and the central bank will begin to remove stimulus when the time comes and the situation changes.
“The economy is growing, and the recent economic news has been increasingly positive,” Williams said in a speech prepared for delivery to the CFA Hawaii Seventh Annual Economic Forecast Dinner in Honolulu. “This is very welcome progress, but it’s brought us only part of the way back. Unemployment remains a huge problem, and that means real hardship for millions of Americans.”
The “aggressive Fed response is an important reason why the economy has moved to more solid ground,” he said, but “the Fed’s job is not over yet. Far from it.”
And there is “lots of work to do” before the Fed can say it has met the goal of full employment, he added.
Household finances, housing and credit have been trouble areas and are “likely to hold down spending growth for some time,” he said. But “overall, things are getting better. You can sense greater optimism out there — albeit cautious optimism.”
Even with the good news, however, Williams repeated his position that the strong monetary policy response that prevented another depression is still needed to buoy the recovery, especially as the low growth forecast will not be enough to bring down unemployment, which he expects to remain above 8% through next year and 7% for several more.
“This is clearly a situation in which we have to keep applying monetary policy stimulus vigorously,” he said.
In contrast to those Fed officials who argue that the excessive stimulus risks fueling inflation, Williams said inflation remains subdued and, in fact, more stimulus may be needed.