Federal Reserve Bank of San Francisco President John Williams said he expects the unemployment rate to remain at or above 8 percent into next year as the economy enters a period of slower job growth.
“Progress on bringing down the unemployment rate has probably slowed to a snail’s pace and perhaps even stalled,” Williams said today in the text of a speech in Portland, Oregon.
The policy-setting Federal Open Market Committee extended its Operation Twist program last month to lower longer-term interest rates and bolster growth. A few members of the FOMC said the Fed will probably need to ease policy further to move the economy toward its target for full employment and stable prices, according to minutes of that meeting released yesterday.
The jobless rate is “still much too high, and economic growth is far short of what’s needed to keep bringing it down quickly,” Williams said in remarks similar to a speech he gave in Coeur D’Alene, Idaho, on July 9. “We stand ready to do what is necessary to attain our goals of maximum employment and price stability.”
Minutes of the June 19-20 meeting highlighted Fed officials’ concerns over the tempering economic outlook. Fifteen participants said the risks to the economy were weighted to the downside in June, up from eight in April, yesterday’s release showed. Two said additional bond purchases are appropriate while two others said they would be warranted in the absence of “satisfactory” employment gains.
Williams, who votes on policy this year, said July 9 that the economy will require more accommodation should the job market make as little progress as he expects over the next year. He repeated today that he would favor purchasing more mortgage bonds should that stimulus become necessary.
The San Francisco Fed chief told reporters after the speech that he’s “very interested to see what other countries do” to spur their economies, citing the Bank of England’s new credit-boosting program. While years of high unemployment have so far generated “no obvious signs of long-run damage” to the U.S. workforce, the economy “keeps getting hit by negative shocks” and “we don’t catch a break,” he added.
Reports since the June FOMC meeting have underscored an economic recovery losing steam. Employers added fewer jobs to payrolls than economists forecast and the jobless rate remained unchanged at 8.2 percent, Labor Department figures showed July 6.
Stocks fell today over concerns that the slowing global economy may hurt corporate profits. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,334.76.
Williams, 50, repeated in his speech that he’s cut his forecasts for growth, seeing an expansion of “a little less than 2 percent” this year and 2.25 percent in 2013.
Inflation will probably fall to 1.25 percent this year and the jobless rate will be at or above 8 percent until the second half of 2013, indicating that the central bank is falling short of both its mandates to secure 2 percent price increases and maximum employment, the district bank president said.