Fed’s Williams: We’re on the Road to Normal

May 22, 2014

San Francisco, CA — While it will be a slow and cautious process, monetary policy is on the road to normalization, according to John C. Williams, president and CEO of the Federal Reserve Bank of San Francisco.  

In a speech to the Association of Trade and Forfaiting in the Americas (ATFA), Williams said, “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.”

Williams was cautiously optimistic, pointing to positive signs of overall economic improvement—including the drop in the unemployment rate, improving financial conditions, and the recent economic indicators that point to “substantial underlying momentum,” particularly the rebound in consumer spending after a winter lull.  However, he was quick to highlight his concern that the housing market was not yet showing the vitality he’d hoped for, and that persistently low inflation continued to be an issue. 

Williams was also clear that “normalizing” should not be confused with “tightening.”  As he has emphasized in previous speeches and interviews, he reiterated that the easing back on large-scale asset purchases—the so-called “taper”—does not represent a tightening of monetary policy, which he expects “will remain highly accommodative for some time.”  “We’re not putting out the fire, we’re just gradually adding less and less fuel,” Williams told conference attendees.  “It’s just one small step towards policy normalization, when the economy has sufficient heat on its own.  A real tightening of policy—which would mean raising the fed funds rate—is still a good way off.”   Still, he said, “As the outlook continues to improve, the Fed is taking the first steps towards normalization.  The process will be gradual; it is not set in stone; and the Fed will respond flexibly to economic developments.  But barring any major shocks, monetary policy is finally on the road to normal.  And simply put, that’s good news.”


Matthew Schiffgens
Federal Reserve Bank of San Francisco
(415) 974-3246


The Federal Reserve Bank of San Francisco, with branch offices in Los Angeles, Seattle, Salt Lake City, and Portland, and a cash processing office in Phoenix, provides wholesale banking services to financial institutions throughout the nine western states. As the nation’s central bank, the Federal Reserve System formulates monetary policy, serves as a bank regulator, administers certain consumer protection laws, and is fiscal agent for the U.S. government. Follow us on Twitter at twitter.com/sffedreserve.