NEW YORK – Given current circumstances, very accommodative monetary policy is “essential,” Federal Reserve Bank of San Francisco President and CEO John C. Williams said Tuesday.
With spending down and inflation contained, “it’s essential that we keep strong monetary stimulus in place,” Williams told the University of San Diego School of Business Administration, according to prepared text of his remarks, released by the Fed.
“I should emphasize that our unusually stimulative monetary policy won’t last forever,” he continued. “Eventually, as recovery picks up, we will trim our securities holdings and raise our interest rate target.” The FOMC has planned an exit “in detail,” and “but, that time is still well off in the future.”
Calling both the situation and the Fed’s response “extraordinary,” Williams said of the FOMC “We’re not miracle workers. Lower interest rates alone can’t instantly put the economy right. But things would be much worse if we hadn’t acted so forcefully.”
Recovery across the country “has been sluggish,” affecting even states that were spared by the housing bust. “High unemployment, restrained demand, and idle production capacity are national in scope. These are just the sorts of problems monetary policy can address. And we don’t need to worry that our stimulative monetary policy could fuel regional imbalances,” he said..
Fed actions were “effective,” Williams continued.
The recovery shows hints “of a stronger, self-sustaining recovery,” he said, singling out the jobs data. “Still,” Williams noted, “we have a long way to go.”
The obstacles to greater growth, he said, are tight credit, uncertainty, and government contraction. “Things are getting better as far as tight credit and uncertainty are concerned,” he said, but he warned government spending probably won’t spike soon. “Indeed, spending at the federal level is set to contract sharply at the end of this year as several temporary programs end. Some of those programs may be extended. But, overall, we can expect federal spending trends to weigh on near-term economic growth.”