SAN DIEGO The president of the San Francisco Federal Reserve Bank said on Thursday he was nervous and worried about the impact to the financial markets of a prolonged shutdown of the federal government, particularly if no action is taken to raise the nation's debt ceiling.
In remarks following an address made at the University of California, San Diego, John Williams said the shutdown, if relatively brief, should not have a significant impact on the economy.
A far greater worry, he said, would be any undermining of confidence in the U.S. economy and the U.S. dollar.
"I think it is important that we deal with the debt ceiling issue before we run out of money," Williams said. He said Treasury officials have pegged that date as Oct 17.
He also said the Federal Reserve is on track to begin by later this year to taper off its current $85-billion-a-month bond-purchase program.
Williams said his stance on the issue lines up with that of Federal Reserve Chairman Ben Bernanke, who has said the Fed would begin cutting back on bond purchases this year, stopping entirely by the middle of next year.
Williams said economic data since June has been "mixed," which explains why the Fed did not act in September. "Data have come out a little softer than I had expected," he said, noting concern over the summer's significant increase in interest rates and potential negative impact on the housing market.
He said the beginning of the tapering will depend entirely on how the economy performs.
Williams noted that the current government shutdown does limit the amount of data available to gauge the economy, but said the Fed has access to its own statistics as well as a range of reports from industry groups and sources outside of the government.
(Reporting By Deena Beasley; Editing by Chizu Nomiyama)