The future looks bright following a gloomy winter that stalled real gross domestic product growth, Federal Reserve Bank of San Francisco President and CEO John C. Williams said Thursday.
"Now, thankfully, the extraordinary is turning back into the ordinary, and we are starting down a path towards normalization, both for the economy and monetary policy," he told a trade association in San Francisco, according to prepared text released by the Fed. "We'll venture down this path slowly, and monetary policy will remain highly accommodative for some time. But I am happy to say that we are on the road back to normal."
But for now, he said, "The ongoing need to reduce unemployment and increase inflation both call for the same medicine: highly accommodative monetary policy."
While he backs the tapering of quantitative easing, Williams describe it as adding less fuel to the fire.
"It's just one small step towards policy normalization, when the economy has sufficient heat on its own," he said. "A real tightening of policy-which would mean raising the fed funds rate-is still a good way off."
Addressing the Fed's 6.5% unemployment target, Williams said, as the measure approached, "things got more complicated," and while that mark has been breached, "it's clear that the labor market is quite a ways from a complete recovery"
Positive signs for the economy include consumer spending, employment gains and an easing of headwinds, such as fiscal policies and financial conditions, although housing remains a concern, he said.
Williams predicted GDP growth to average 3% this year and next, assuming no "heightened geopolitical tensions, for instance, or instability in foreign financial markets, particularly in emerging economies." He also sees the unemployment rate falling to "the natural rate," which he defined as around 5.25% to 5.50%, "sometime in 2016."
