NEW YORK Feb 21 The U.S. Federal Reserve should
keep buying bonds until well into the second half of this year
to spur hiring at a time when inflation pressures remain in
check, a senior U.S. central banker said on Thursday.
"The Fed's dual mandate from Congress is to pursue maximum
employment and price stability. We are missing on both of these
goals... Unemployment is far too high and inflation is too low,"
said San Francisco Federal Reserve President John Williams.
As a result, Williams, who is not a voting member of the
Fed's policy-setting committee this year, said the U.S. economy
needs "powerful and continuing" policy stimulus.
"I anticipate that purchases of mortgage-backed securities
and longer-term Treasury securities will be needed well into the
second half of this year," he said in remarks prepared for
delivery to The Forecasters Club in New York.
The Fed opted in January to keep buying bonds at an $85
billion monthly pace until the labor market outlook improved
substantially. But the minutes of that meeting, released on
Wednesday, highlighted divisions on the 19-strong policy-setting
committee with some officials concerned about its rising costs.
It also committed to hold interest rates near zero to
support the recovery until unemployment fell to 6.5 percent, so
long as inflation did not threaten to rise above 2.5 percent.
The U.S. jobless rate in January was 7.9 percent.
Williams did not dwell on the risks associated with the
purchases that have tripled the size of the Fed's balance sheet
to around $3 trillion since 2008. But he did play down the
concern this massive expansion would fan future inflation.
"I want to assure you that in no way have we relaxed our
commitment to our price stability mandate. We constantly monitor
inflation trends and inflation expectations. And we will not
hesitate to act if necessary," he said.
The Fed's long-term inflation goal is 2 percent and Williams
projected inflation, measured by the Fed's preferred personal
consumption expenditures price index (PCE), would average around
1-1/2 percent over the next few years.
However, he was not entirely gloomy on growth and emphasized
that a gradual U.S. recovery appeared to be on track,
forecasting economic growth to mount 2-3/4 percent this year and
3-1/4 percent in 2014. But this will not quickly curb
"I expect the (jobless) rate to stay at or above 7 percent
at least through the end of 2014 and not drop below 6-1/2
percent until the second half of 2015," Williams said.