Unconventional Policies Supported U.S., Says Fed’s WilliamsJiyeun Lee and Jeff Kearns
Federal Reserve Bank of San Francisco President John Williams said unconventional policies were important in supporting a U.S. economy that is now moving back closer to full strength.
“One of the goals of policies of taking extraordinary actions was so that we avoided long-term deflation so that we can normalize monetary policy sooner,” Williams, who will vote next year on the policy-setting Federal Open Market Committee, said today in Seoul. “Hopefully that’s what we’ll be able to do if things continue.”
Williams, who was speaking on a panel discussion at the Bank of Korea, has been a consistent supporter of Fed policy that has held interest rates near zero since December 2008 and undertook a two-year bond buying program to expand its balance sheet to a record $4.49 trillion before ending last month.
The risk in the economy is an extended period of very low interest rates around the world, he said.
“What is driving that is global growth which is likely to be slower in the next decade or so,” Williams said. “U.S. productivity trend growth is still positive but not as strong as in the past.”
Minutes released on Nov. 19 showed many officials at the last FOMC meeting Oct. 28-29 said they should be on the lookout for signs of a decline in expectations for inflation, which has remained below their 2 percent target since March 2012.
“Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered,” the Fed said.
Policy makers also “pointed to a somewhat weaker economic outlook and increased downside risks in Europe, China, and Japan,” the record of the gathering shows. “It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected,” the minutes show.
The International Monetary Fund last month trimmed its estimate for global expansion this year to 3.3 percent. An IMF report last week said major advanced economies, especially the euro area and Japan, “could face an extended period of low growth reflecting persistently weak private demand -- especially investment -- that could turn into stagnation.”
FOMC participants last month said the effects on the U.S. of weaker growth abroad are “likely to be quite limited,” with officials noting the share of external trade in the U.S. economy is “relatively small,” effects of dollar fluctuations on exports are “modest,” or that the slowdown in foreign demand “would likely prove to be less severe than initially feared.”
Williams said last month that while inflation targeting helped central banks keep prices low and stable during the crisis, the policy still faces “critical challenges” with interest rates near zero. Holding rates at the zero lower bound has “constrained conventional policy actions for most major central banks during the past six years,” making it difficult to achieve inflation goals, he said in a speech in South Africa.
Today Williams spoke on a panel discussion at a conference sponsored by the Bank of Korea and the IMF.
Williams, 52, joined the San Francisco Fed in 2002 and was director of research before he succeeded Janet Yellen as president in March 2011. His district includes Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.