NEW YORK – Monetary policy accommodation will end at some point, not soon though, Federal Reserve Bank of San Francisco President and CEO John C. Williams said Friday
Noting that inflation is expected to remain in line with targets for the next few years, and “progress” is being made on “the employment part of our mandate,” Williams said, “we have a long way to go,” according to prepared text of his speech to the California Bankers Association, released by the Fed.
Since “substantial risks” could derail the recovery, “it’s crucial that we continue our highly accommodative monetary policy,” he said, adding, “Of course, very low interest rates won’t last forever. As the economy picks up, the Fed will reduce accommodation and begin to raise interest rates.”
At that point, he said, the Fed will also “unwind the unconventional monetary policies,” including liquidating Treasury and mortgage agency security holdings.
“But,” he said, “that day is still far off.”
“I am increasingly hopeful that the recovery has entered a phase of self-sustaining growth,” Williams said, noting consumer confidence and spending are up and the manufacturing sector is healing.
But, the European crisis and our own budgetary woes “weigh on the economy even if the worst doesn’t happen,” and stunt growth. “In sum, the economy is doing much better, but is still fragile.”
Turning to the recession, Williams said, the lesson to be learned is financial system “excesses” took the country “perilously close to economic catastrophe. It is no exaggeration to say that we were on the brink of another Great Depression.”
While the nation managed to avoid “the worst,” the downturn still invoke “severe” damage to the economy. “Millions of people lost jobs or homes. Many thousands of businesses failed,” he said.
The Fed, he said, has evolved, and now “working the way we did before the crisis is simply not an option.” He suggested that “more effective regulation of our financial system” can help prevent “another disaster.”
Williams added, the nation must “be forward-looking in identifying and responding to emerging threats.”
