Fed must keep applying stimulus vigorously: Williams
HONOLULU, Hawaii, March 1
HONOLULU, Hawaii, March 1 (Reuters) - Recent signs of improvement in the U.S. economy are encouraging but the rebound has been anemic and the Federal Reserve must "keep applying monetary policy stimulus vigorously," San Francisco Federal Reserve President John Williams said on Thursday.
"We are far short of maximum unemployment. And I expect inflation to fall this year below the 2 percent level that we view as consistent with our mandate," Williams said in prepared remarks to a conference in Honolulu.
Despite a recent drop in the unemployment rate to 8.3 percent, Williams said he expected it to remain above 8 percent into next year and will be "well over" 7 percent for several years to come.
"Let me emphasize, though, overall things are getting better. You can sense greater optimism out there, albeit cautious optimism," said Williams, a voting member this year on the Fed's policy-setting panel.
Still, Williams said further stimulus may be needed if the economy stumbles again.
"We may need to do more if the recovery falters or if inflation stays well below 2 percent. If the economy needs more stimulus, restarting our program of purchasing mortgage-backed securities would probably be the best course of action."
The U.S. central bank has kept interest rates near zero for more than three years, and it has pushed down borrowing costs further by buying $2.3 trillion in long-term securities.
U.S. manufacturing cooled in February and consumer spending was flat for a third straight month in January, data showed on Thursday, suggesting the economy lost more steam early this year than expected.
Williams has supported recent moves by Fed to bolster what he has described as a "lackluster" recovery.
He joined the majority of his fellow policymakers in January's decision signalling interest rates will stay near zero through late 2014, a year and a half longer than the Fed had previously projected.
The San Francisco Fed chief is known as a monetary policy "dove" who is more concerned with the threat of high joblessness than high inflation.
"With the economy still underperforming and wage growth modest, inflation should remain subdued," Williams said in the speech, adding he expected inflation to be about 1.75 percent this year and 1.5 percent next year, down from about 2.75 percent in 2011.
While oil prices have run up again recently, the prices of other commodities have not seen a similar surge, he noted.
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