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Banks

Fed may need to buy more bonds: Williams

(Reuters) - The Federal Reserve Bank of San Francisco President John Williams expects that the central bank will need to buy more bonds if his forecast for subpar growth and low inflation comes to pass, the Wall Street Journal reported on Monday.

With import price pressures ebbing and wages still under pressure, Williams expects inflation to slow to 1.5 percent in 2012 and 2013 from nearly 4 percent earlier last year, he said in an interview with the newspaper.

He added that he expects subpar economic growth in 2012 at a 2.25 percent annual rate and 3 percent in 2013 and does not consider it enough to bring the unemployment rate much below 8 percent by the end of 2013.

“Unemployment is going to be sustained above a reasonable estimate of the natural rate of unemployment, which is closer to 6.5 percent than the 8.5 percent that we have now. That does make an argument that we should have more stimulus,” he said.

St Louis Fed President James Bullard said on Saturday that recent data seems to suggest that the U.S. economic recovery is gaining strength, suggesting that the Fed may not need to buy bonds right now.

The diverse remarks show that the Fed is still divided over the need for more accommodation to ensure a soft recovery does not dissipate or wilt due to an outside shock such as an intensification of the European debt crisis.

Several Fed officials, including Boston Fed President Eric Rosengren, have urged another round of buying mortgage-backed securities to shore up the depressed housing market, . Williams, who is now a voting member of the Federal Open Market Committee which sets monetary policy, said he is not in favor of increasing interest rates “anytime soon.” (Reporting by Saqib Iqbal Ahmed in Bangalore; Editing by Ramya Venugopal)

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