SF Fed’s Williams: Normalization of U.S. Monetary Policy is “The Most Telegraphed Monetary Policy of Our Lifetimes”

May 28, 2017

  • Forecasts that process for unwinding Fed’s balance sheet will begin later this year and will be widely telegraphed, gradual, and “boring”
  • Asserts that balance sheet management will take place in the “background” while interest rates continue to be the primary lever used to keep economy from overheating or running too cold
  • Says normalization of U.S. monetary policy will make both U.S. and global economies more sustainable and resilient

Singapore – Today, John C. Williams, President and CEO of the Federal Reserve Bank of San Francisco, said that the Fed’s gradual, transparent approach to normalizing monetary policy after the recession is “the most telegraphed monetary policy of our lifetimes” and that the process for unwinding its balance sheet will also be gradual, open, and widely telegraphed. Speaking to an audience from across the Asian continent, Williams asserted that a gradual, transparent approach to normalization will ultimately benefit both the U.S. and global economies.

“In an interconnected global economy, when one country takes action to make its economy more sustainable and resilient, that adds to the sustainability and resilience of the global economy in turn,” said Williams. “The last thing we want to do is to fuel unnecessary or avoidable volatility or disruption – whether we’re talking about domestic markets or international markets. That’s why we’re taking a gradual approach to normalization and why we’re being very clear, transparent, and open about how we’re making decisions.”

Williams explained that with unemployment at 4.4% and inflation on track to reach the Fed’s 2% goal next year, the data indicates that the U.S. economy has fully recovered from the recession, “The U.S. economy is about as close to the Fed’s dual mandate goals as we’ve ever been,” he said. Therefore, the aim of monetary policy in the U.S. must be “to keep the economic expansion on a sound footing that can be sustained for as long as possible.”

When discussing the balance sheet, Williams told the audience that the Fed is “committed to slowly shrinking the balance sheet with the same sort of widely telegraphed, gradual, and – frankly – boring modus operandi that we’ve adopted for normalizing conventional monetary policy.” He highlighted that “this will occur “organically” over time, as securities mature or are paid off” and suggested that “The more public understanding there is, the lesser the risk of market disruption and volatility.”

Williams forecasts that the Fed will begin the process of unwinding the balance sheet later this year, explaining that the process will begin when the Fed is further along the path of normalizing the level of the federal funds rate. He offered the caveat that this could change were the economic outlook to deteriorate.

He stressed that balance sheet management “will be taking place in the background” and that the Fed “will continue to use conventional monetary policy tools – raising and/or lowering interest rates – as the lever we operate to keep the economy from overheating or running too cold.”

Williams’ remarks were the keynote presentation at an annual Symposium on Asian Banking and Finance that is co-hosted annually by the San Francisco Fed and the Monetary Authority of Singapore.


Kevin Sajdak
Federal Reserve Bank of San Francisco
(415) 977-3631


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/sffed.