NEW YORK – Monetary policy must remain highly accommodative, and the Fed must be ready “to do even more if needed,” Federal Reserve Bank of San Francisco President John Williams said Wednesday.
“I see the Fed falling short on both our maximum employment and inflation mandates for some time,” Williams told Seattle-Area community leaders according to prepared text of his speech, released by the Fed. “And the turmoil in Europe and government fiscal retrenchment in the United States raise the danger that the economy could perform worse than I expect. For these reasons, it’s crucial that we maintain our current highly stimulatory monetary policy stance. As part of this, we’ve stated our intention to keep our benchmark short-term interest rate at exceptionally low levels at least through late 2014. We must also stand ready to do even more if needed to best achieve our statutory goals of maximum employment and price stability.”
More accommodation would be warranted, he said, “If the outlook for growth worsens to the point that we no longer expect to make sustained progress on bringing the unemployment rate down to levels consistent with our dual mandate, or if the medium-term outlook for inflation falls significantly below our 2 percent target.”
He suggested buying longer-maturity securities, including agency mortgage-backeds. “Past purchases have succeeded in lowering borrowing costs and improving financial conditions, thereby supporting economic recovery,” he said.
Times, Williams said, “are highly uncertain” making predictions more difficult than normal.
