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Fed to miss on inflation, jobs for 'several years': Williams
PORTLAND, Ore |
PORTLAND, Ore (Reuters) - The U.S. Federal Reserve will likely undershoot its goals for inflation and employment for several years, a top Fed official said on Thursday, adding that if his forecast pans out he would support more bond purchases to boost the economy.
"The growth is frustratingly slow," San Francisco Federal Reserve Bank President John Williams said on Thursday, referring to the U.S. recovery from its worst recession in decades, and looming risks from the European debt crisis and uncertainty over whether lawmakers will stop a raft of spending cuts and tax increases set to kick in at the end of the year.
Not to mention, he told reporters after talking to community leaders in Portland Oregon, the series of natural disasters that have hurt the economy, like the tsunami last March in Japan and the current U.S. Midwest drought.
"We keep getting hit by negative shocks," he said. "We don't catch a break. I am starting to feel that way."
The Fed, which has held overnight interest rates near zero since December 2008, has already bought $2.3 trillion in government and mortgage-related debt to boost the economy.
Last month it did a little more to keep long-term interest rates low, announcing it would buy an additional $267 billion in long-term bonds with proceeds from short-term debt in a measure known as Operation Twist.
Williams cited research suggesting the addition might only help lower rates by a tenth of a percentage point.
Many economists expect the U.S. central bank to ease monetary policy further by launching a third round of outright bond purchases.
But the minutes of the Fed's June 19-20 meeting showed a majority of policymakers was not yet on board for further stimulus - at least not before last week's employment report, which showed a paltry 80,000 jobs were created in June.
The Fed will look at new tools for easing policy, the minutes said. Asked for details, Williams said he personally would want to look at strategies used in other countries, like the Bank of England's "funding for lending" program to boost lending to cash-strapped businesses.
Williams forecast growth this year at a little below 2 percent, and next year at a little above. That's not fast enough to bring down unemployment, not at 8.2 percent, for at least a year or more, he said.
"I don't see real progress on unemployment coming down until really into 2014," he said.
With little in the way of wage pressures, inflation will drop to 1.25 percent this year and will rise only to 1.75 percent next year, below the Fed's 2 percent target, he said.
If the Fed continues to miss on both its mandates, he said, the most effective tool that it has is to buy long-term Treasuries or mortgage-backed securities.
(Reporting by Teresa Carson, writing by Ann Saphir; Editing by Bernard Orr)
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