Economic Outlook Positive, but Accommodative Monetary Policy Still Necessary: San Francisco Fed President

Phoenix — The US economic outlook is gaining traction, but the Fed’s recent scaling back of its bond purchases does not signal an end to accommodative monetary policy, said John C Williams in a speech Tuesday.

Speaking to Lambda Alpha International and the Arizona Bankers Association, the president of the San Francisco Fed said: 

“After years of fits and starts, the economy appears to be on a much stronger path than we’ve seen in some time … the economic data have been quite encouraging, and there’s reason to believe that this year, the economic recovery will gain further momentum.“ 

Williams estimated real GDP growth of about 3 percent for this year and next, up from around 2 ½ percent in 2013.  He also cited improvements in the housing and banking sectors, both in his district and nationally. While he noted challenges both sectors face, his outlook was generally upbeat.  

However, Williams warned that the economy has not yet turned the corner and that monetary policy will respond to developments in economic conditions.  Addressing the Fed’s two areas of responsibility, Williams said:

“In a nutshell, the combination of too-high unemployment and too-low inflation calls for continued monetary accommodation.  In this regard, I want to stress that scaling back on asset purchases is not a retreat from accommodative monetary policy. The federal funds rate will remain near zero for the foreseeable future.”   

“…we’re starting to ease off the gas, but we’re nowhere near hitting the brakes yet.”