Fed’s Williams on Accommodative Stance: “The Bottom Line is, it has Worked”

San Francisco, 30 June, 2014 — The Federal Reserve’s continued accommodation has been absolutely the right stance to take, John C. Williams, president and CEO of the San Francisco Federal Reserve said today.

“It was Milton Friedman—one of the greatest economists of the past century and a leading expert on the Great Depression—who taught us that when inflation is too low, monetary policy needs to do more than just lower short-term interest rates near zero,” Williams said. “That’s what we’ve done and it’s worked. We’ve avoided deflation and helped the economy start moving back towards normal.”

In remarks to the Utah and Montana Bankers Associations, Williams addressed common criticisms of the Fed’s easy-money policies over the past several years. Responding to complaints that the Fed’s actions after 2010 were too interventionist, Williams noted, “When you break a leg, you don’t just snap the pieces back into place; you leave the cast on until the bone heals. Otherwise, you risk doing even greater damage. And in this case, the economy wasn’t ready to walk on its own. “

Williams also stressed that the Fed’s so-called unconventional monetary policies, including the large-scale asset purchases program commonly referred to as quantitative easing, are not “radical” or “unprecedented.” “These policies weren’t dreamed up on the fly,” he said. “They’re different, and they’re unconventional, but they’re not outside the natural realm of central bank theory or practice.”

The Federal Reserve Bank of San Francisco (SF Fed) works to advance the nation’s monetary, financial, and payment systems to build a stronger economy for all Americans. As part of the U.S. central bank, the SF Fed serves the Twelfth Federal Reserve District, which covers the nine western states—Alaska, Arizona, California, Hawai’i, Idaho, Nevada, Oregon, Utah, and Washington—plus American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. By pursuing our two key goals of maximum employment and price stability—known as the Fed’s dual mandate—we work toward supporting an economy that works for everyone.